In what proved to be our most popular Halloween Horror Special ever, we compared the economics of John Maynard Keynes to Audry II, “the mean, green mother from outer space.” We thought that maybe Keynes was the unwitting dupe of a sinister plan from outer space to conquer the world.
THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
Showing posts with label Halloween Horror. Show all posts
Showing posts with label Halloween Horror. Show all posts
Thursday, October 29, 2020
Tuesday, October 31, 2017
Halloween Horror Special: Marxism
We’re still
reeling in disbelief here at CESJ global headquarters . . . and we’re almost
out of fish line. And as for the pole .
. . well, we’re talking to him next week, and we’ll see what he has to say. But enough of bad fake Marx Brothers jokes. On to the point of today’s Horror Special . .
. the wage system!
Monday, October 26, 2015
Halloween Horror Five-Year Anniversary Special
Five years ago today we ran one of our most popular blog
postings ever: “Halloween Horror Special XIII: Mean Green Mother from Outer
Space.” Possibly because of
its resemblance to a tabloid newspaper feature article (even though every word
is absolutely true), the posting has consistently ranked in the top five for
half a decade, one of the “Top Five for Five,” so to speak. That being the case, we decided to rerun it
today, with a few corrections, and adding a few illustrations, and removing the
links that no longer lead anywhere.
Thursday, October 30, 2014
Halloween Horror Special: The Faith that Ate Reason
We used to have an annual series of “Halloween Horror
Specials” on this blog for the entire month of October. Then we shortened it to a week. Last year we didn’t post anything. Why? The
entertainment value of horror (especially if there is an attempt, however weak,
at humor, e.g., Army of Darkness)
depends on the ultimate conviction that none of it is real. It might make you think (e.g., Mary Shelly’s Frankenstein
. . . who was the creator of the monster, not the monster, by the way), or just
entertain (H.P. Lovecraft’s Cthulhu Mythos . . . not that we’re entertained particularly by
horror, especially of that subgenre) but you know, ultimately, that it’s not
happening and you can go to sleep safely.
After you’ve checked under the bed one
more time. Or maybe two. . . .
Monday, October 14, 2013
An Immodest Proposal — A Halloween Horror Special
There
have been one or two comments about our (presumed) failure to post the annual
series of “Halloween Horror Specials” on the blog this year. While we hate to break tradition, do we
really want more horror than we already have in the world today? Still . . . tradition is tradition. As the Irish say, “Neither make nor break a
tradition.” Consider this an attempt to
keep the tradition alive.
Monday, October 31, 2011
Halloween Horror Special XIII (-I): Baby Seven Billion (Gasp)
Notice first the sequence of this posting in the Halloween Horror Special series. We goofed. We thought we had it "timed" perfectly to have The Big Number Thirteen on Halloween itself. At least this is posting #913. Still, we ended up with the Lucky Dozen instead. So, in contrast to the habit that the Bureau of Labor Statistics has developed of manipulating statistics to avoid scaring people (such as reporting approximately half the real unemployment rate), we are manipulating the statistic in order to scare people. That's why we're calling today's final posting in this year's Halloween Horror Special series "13-1" rather than "12."
There's panic in the streets. On the front page of the Washington Post, we have, at one and the same time, concerns about over-population in the developing world, and fears that there're not enough new wage slaves being born in the developed world to support aging populations.
Obvious question: If developed countries don't have enough workers to generate the labor income to tax to support those who no longer or can't sell their labor, and developing countries have more workers than there are wage slave jobs to support them, what's the problem?
Obvious answer: in the short term, allow people who can't find wage slave jobs at home to move freely to where they can find a wage slave job. Of course, the wage slave jobs are disappearing, so the concern expressed by the developed countries is actually the wrong question. We need to ask a new question, because simply allowing unrestricted immigration isn't going to do anything but put a strain on the social services of the developed countries that would make the barbarian migrations into the Roman Empire look like a Sunday School picnic.
The right question: How, at a time when the wage slave system is clearly inadequate, and is rapidly reaching the point where maintaining it is counterproductive and costing more than is realized in benefits — if benefits are still being realized! — is it possible for people to gain enough income?
The capitalist and State-capitalist ("socialist") solution is to redistribute existing wealth from producers to non-producers. In capitalism, this is an expedient to keep the economy running, deplorable, but necessary. In State-capitalism, redistribution is the essence of the system.
Neither regular capitalism nor capitalism lite — State-capitalism, a.k.a., "socialism" — really give us a workable answer. If redistribution could work, regardless how you do it, then we wouldn't be in the trouble we're in today. So what's the real answer?
The Just Third Way, of course. (What, you were expecting us to say something different?) Specifically, Capital Homesteading. Capital Homesteading solves both problems: inadequate wage income, and "over-population."
One, by adding capital income to wage income, or even replacing wage income completely with capital income, consumption and production can once again be linked directly together. This is "Say's Law of Markets." In the Just Third Way, the purpose of production is consumption, not reinvestment to "create jobs." All financing ideally comes from "future savings," not past restrictions in consumption, which is how "mainstream economics" (and most of the little creeks) define all saving. All income can be used for consumption, thereby providing natural job creation, and matching supply with demand. In the Just Third Way under Capital Homesteading there is no excuse for anyone having insufficient income.
Two, "population" is a funny thing. Poor people have, biologically speaking, a lower chance of survival than people who have a sufficiency. According to Buckminster Fuller, nature takes this into account. Poor people tend to reproduce at a high rate simply to ensure the survival of the species. (Nature doesn't know about those social welfare programs that redistribute income and provide medical care, ensuring that more poor people will survive who ordinarily would have died.) People with a biologically better chance of survival — i.e., a higher standard of living — tend to have a lower rate of reproduction. As a number of economists have pointed out over the past couple of centuries in refutation of Malthus's 1798 Essay on Population, the level of economic development does not rise as population decreases. No, the rate of population growth varies inversely with the level of economic development. (In mathematical terms, population growth rates, not the level of economic development, are the dependent variable.)
Yes, shocking. Population control in developed countries has been justified on the grounds of "reproductive rights," which translated from today's Newspeak means the right to kill your offspring after you've reproduced, not the right to choose whether to reproduce. Population control in developing countries has been justified on the grounds that reducing population will somehow spur development and raise living standards . . . by removing the demand essential to provide the incentive to develop economically.
This, of course, makes perfect "sense" in Keynesian economics. In Keynesian economics you can redistribute forever without worrying about production, just as long as you provide sufficient effective demand through inflation to force savings (shifting purchasing power from consumers to producers by reducing consumption) and create jobs in response to increased savings and reduced demand for jobs. You then grow the economy by eliminating people and reducing the amount of effective demand even further, then continue to inflate the currency to stimulate demand, inflating it faster as there are fewer people with jobs, or fewer people all around. This increases demand by decreasing consumption, and everybody who is left has a job producing things that nobody has the money to buy.
Or you could generate real savings in the future by creating investment funds by monetizing the present value of future marketable goods and services so that everybody can own the capital that is carrying out production, that is, by promising to repay everyone in the future once you start producing marketable goods and services.
Well, this is Halloween. You wouldn't want to see rational behavior.
#30#
There's panic in the streets. On the front page of the Washington Post, we have, at one and the same time, concerns about over-population in the developing world, and fears that there're not enough new wage slaves being born in the developed world to support aging populations.
Obvious question: If developed countries don't have enough workers to generate the labor income to tax to support those who no longer or can't sell their labor, and developing countries have more workers than there are wage slave jobs to support them, what's the problem?
Obvious answer: in the short term, allow people who can't find wage slave jobs at home to move freely to where they can find a wage slave job. Of course, the wage slave jobs are disappearing, so the concern expressed by the developed countries is actually the wrong question. We need to ask a new question, because simply allowing unrestricted immigration isn't going to do anything but put a strain on the social services of the developed countries that would make the barbarian migrations into the Roman Empire look like a Sunday School picnic.
The right question: How, at a time when the wage slave system is clearly inadequate, and is rapidly reaching the point where maintaining it is counterproductive and costing more than is realized in benefits — if benefits are still being realized! — is it possible for people to gain enough income?
The capitalist and State-capitalist ("socialist") solution is to redistribute existing wealth from producers to non-producers. In capitalism, this is an expedient to keep the economy running, deplorable, but necessary. In State-capitalism, redistribution is the essence of the system.
Neither regular capitalism nor capitalism lite — State-capitalism, a.k.a., "socialism" — really give us a workable answer. If redistribution could work, regardless how you do it, then we wouldn't be in the trouble we're in today. So what's the real answer?
The Just Third Way, of course. (What, you were expecting us to say something different?) Specifically, Capital Homesteading. Capital Homesteading solves both problems: inadequate wage income, and "over-population."
One, by adding capital income to wage income, or even replacing wage income completely with capital income, consumption and production can once again be linked directly together. This is "Say's Law of Markets." In the Just Third Way, the purpose of production is consumption, not reinvestment to "create jobs." All financing ideally comes from "future savings," not past restrictions in consumption, which is how "mainstream economics" (and most of the little creeks) define all saving. All income can be used for consumption, thereby providing natural job creation, and matching supply with demand. In the Just Third Way under Capital Homesteading there is no excuse for anyone having insufficient income.
Two, "population" is a funny thing. Poor people have, biologically speaking, a lower chance of survival than people who have a sufficiency. According to Buckminster Fuller, nature takes this into account. Poor people tend to reproduce at a high rate simply to ensure the survival of the species. (Nature doesn't know about those social welfare programs that redistribute income and provide medical care, ensuring that more poor people will survive who ordinarily would have died.) People with a biologically better chance of survival — i.e., a higher standard of living — tend to have a lower rate of reproduction. As a number of economists have pointed out over the past couple of centuries in refutation of Malthus's 1798 Essay on Population, the level of economic development does not rise as population decreases. No, the rate of population growth varies inversely with the level of economic development. (In mathematical terms, population growth rates, not the level of economic development, are the dependent variable.)
Yes, shocking. Population control in developed countries has been justified on the grounds of "reproductive rights," which translated from today's Newspeak means the right to kill your offspring after you've reproduced, not the right to choose whether to reproduce. Population control in developing countries has been justified on the grounds that reducing population will somehow spur development and raise living standards . . . by removing the demand essential to provide the incentive to develop economically.
This, of course, makes perfect "sense" in Keynesian economics. In Keynesian economics you can redistribute forever without worrying about production, just as long as you provide sufficient effective demand through inflation to force savings (shifting purchasing power from consumers to producers by reducing consumption) and create jobs in response to increased savings and reduced demand for jobs. You then grow the economy by eliminating people and reducing the amount of effective demand even further, then continue to inflate the currency to stimulate demand, inflating it faster as there are fewer people with jobs, or fewer people all around. This increases demand by decreasing consumption, and everybody who is left has a job producing things that nobody has the money to buy.
Or you could generate real savings in the future by creating investment funds by monetizing the present value of future marketable goods and services so that everybody can own the capital that is carrying out production, that is, by promising to repay everyone in the future once you start producing marketable goods and services.
Well, this is Halloween. You wouldn't want to see rational behavior.
#30#
Thursday, October 27, 2011
Halloween Horror Special X: Hungry Grass
According to William Butler Yeats in his Fairy and Folk Tales of the Irish Peasantry (1888), an Fear Gorta — "The Man of Hunger" — is a spirit born out of a patch of "hungry grass" (féar gortach, a.k.a., "fairy grass"). The spirit, sometimes termed a fairy, resembles a man who died of starvation. It walks the roads, seeking charity. Depending on the source, you are either blessed with good fortune for giving something (preferably food) to the Fear Gorta, or cursed just for seeing it. (That being the case, it's probably safest to give alms, giving you a 50/50 chance of escaping the curse.)
As horrifying as the Fear Gorta might be, féar gortach is worse. It's one of the legends that, like the Fear Gorta, came out of the Great Famine — An Gorta Mór — that ravaged Ireland from 1846 to 1852 . . . although, according to historian Cecil Woodham-Smith in The Great Hunger: Ireland, 1845-1849 (1962), it was never really "over." Fairies that you've harmed or irritated in some fashion sow féar gortach in revenge for some harm or slight you've offered them, real or imagined. If you walk on it, you are instantly afflicted with a perpetual and insatiable hunger.
It's not entirely clear whether the Fear Gorta is someone who has walked on féar gortach, or whether the Fear Gorta springs from féar gortach as the result of spontaneous generation. Whatever the case may be, it's a good reason not to tick off any Irish fairies that happen to be around.
How does all of this fit into the Just Third Way? Two ways. One, a .pdf of CESJ's Economic Justice Classics edition of William Thomas Thornton's A Plea for Peasant Proprietors is now available. There's no cover yet, and we're still finalizing the index, but if you want to take a look at the book for free, send an e-mail to "publications [at] cesj [the dot goes here] org" and we'll send you a link that will let you download it. It's in .pdf, so we can send it anywhere in the world.
Two, it's remarkable how closely a "folk tale" that originated over a century and a half ago resembles the current world situation. The need for more and more non-productive debt incurred by creating money backed by the present value of future tax collections that afflicts governments throughout the world is like the craving for food of someone who walked across a patch of hungry grass.
Like the curse of hungry grass, the lust for non-productive debt can never be satisfied. The more credit you extend to a government for non-productive uses, the worse the situation becomes. Allow a government to create yet more money, and it goes away for a short time, like the Fear Gorta, but returns soon after with an even greater hunger. Despite the push for "austerity" and tax increases, there is no cure for the curse of non-productive debt. A government with an insatiable appetite for non-productive debt is doomed to eventual starvation — and death.
Note, however, that the curse of féar gortach is only inflicted if you walk across the hungry grass. Similarly, a government can avoid the curse of ever-increasing non-productive debt if it doesn't create money in anticipation of future tax collections, creating a liability it may never have the capacity to repay.
It is bad enough for a government to borrow from existing pools of savings. As Henry C. Adams explained in Public Debts: An Essay in the Science of Finance (1898), this renders the government unaccountable to the taxpayer for the source of the funds.
It is fatal for a government to create money backed only by its own "faith and credit." That raises a specter far more frightening than the Fear Gorta: a colossal mountain of debt bounded only by politicians' insatiable appetite for spending.
Fortunately, a government afflicted with debt-hunger, even seemingly insatiable debt-hunger, is not in the same situation as the Fear Gorta or someone who walks across féar gortach. Politicians' appetite for spending cannot be controlled — but the ability to spend can.
The relatively simple reforms of the money and credit system embodied in Capital Homesteading can establish accountability on the part of government. By linking all new money creation directly to the present value of existing and future marketable goods and services by discounting and rediscounting private sector bills of exchange at commercial and central banks, respectively, there would be no more non-productive debt.
It would no longer be a question of how much non-productive government — or consumer — debt the economy could take, but how to encourage agriculture, commerce, and industry to rebuild the tax base and raise money by legitimate means, that is, by producing marketable goods and services. A restored tax base would allow governments, by inflicting austerity on themselves, not their citizens, to live within their means and begin paying down some of the debt they've incurred during the spending spree of the past century or so.
One more thing is needed to end the debt-hunger. Ensure universal, direct ownership of all new capital financed with productive credit extended directly to the private sector through the commercial banking system and rediscounted at the central bank instead of being filtered through non-productive government spending.
Capital ownership by people who will use the income from the new capital first to pay for the acquisition of the capital and thereafter for consumption will ensure a sustainable level of demand without creating money for either non-productive consumer debt or non-productive government debt. The Fear Gorta of debt will finally be able to rest in peace.
#30#
As horrifying as the Fear Gorta might be, féar gortach is worse. It's one of the legends that, like the Fear Gorta, came out of the Great Famine — An Gorta Mór — that ravaged Ireland from 1846 to 1852 . . . although, according to historian Cecil Woodham-Smith in The Great Hunger: Ireland, 1845-1849 (1962), it was never really "over." Fairies that you've harmed or irritated in some fashion sow féar gortach in revenge for some harm or slight you've offered them, real or imagined. If you walk on it, you are instantly afflicted with a perpetual and insatiable hunger.
It's not entirely clear whether the Fear Gorta is someone who has walked on féar gortach, or whether the Fear Gorta springs from féar gortach as the result of spontaneous generation. Whatever the case may be, it's a good reason not to tick off any Irish fairies that happen to be around.
How does all of this fit into the Just Third Way? Two ways. One, a .pdf of CESJ's Economic Justice Classics edition of William Thomas Thornton's A Plea for Peasant Proprietors is now available. There's no cover yet, and we're still finalizing the index, but if you want to take a look at the book for free, send an e-mail to "publications [at] cesj [the dot goes here] org" and we'll send you a link that will let you download it. It's in .pdf, so we can send it anywhere in the world.
Two, it's remarkable how closely a "folk tale" that originated over a century and a half ago resembles the current world situation. The need for more and more non-productive debt incurred by creating money backed by the present value of future tax collections that afflicts governments throughout the world is like the craving for food of someone who walked across a patch of hungry grass.
Like the curse of hungry grass, the lust for non-productive debt can never be satisfied. The more credit you extend to a government for non-productive uses, the worse the situation becomes. Allow a government to create yet more money, and it goes away for a short time, like the Fear Gorta, but returns soon after with an even greater hunger. Despite the push for "austerity" and tax increases, there is no cure for the curse of non-productive debt. A government with an insatiable appetite for non-productive debt is doomed to eventual starvation — and death.
Note, however, that the curse of féar gortach is only inflicted if you walk across the hungry grass. Similarly, a government can avoid the curse of ever-increasing non-productive debt if it doesn't create money in anticipation of future tax collections, creating a liability it may never have the capacity to repay.
It is bad enough for a government to borrow from existing pools of savings. As Henry C. Adams explained in Public Debts: An Essay in the Science of Finance (1898), this renders the government unaccountable to the taxpayer for the source of the funds.
It is fatal for a government to create money backed only by its own "faith and credit." That raises a specter far more frightening than the Fear Gorta: a colossal mountain of debt bounded only by politicians' insatiable appetite for spending.
Fortunately, a government afflicted with debt-hunger, even seemingly insatiable debt-hunger, is not in the same situation as the Fear Gorta or someone who walks across féar gortach. Politicians' appetite for spending cannot be controlled — but the ability to spend can.
The relatively simple reforms of the money and credit system embodied in Capital Homesteading can establish accountability on the part of government. By linking all new money creation directly to the present value of existing and future marketable goods and services by discounting and rediscounting private sector bills of exchange at commercial and central banks, respectively, there would be no more non-productive debt.
It would no longer be a question of how much non-productive government — or consumer — debt the economy could take, but how to encourage agriculture, commerce, and industry to rebuild the tax base and raise money by legitimate means, that is, by producing marketable goods and services. A restored tax base would allow governments, by inflicting austerity on themselves, not their citizens, to live within their means and begin paying down some of the debt they've incurred during the spending spree of the past century or so.
One more thing is needed to end the debt-hunger. Ensure universal, direct ownership of all new capital financed with productive credit extended directly to the private sector through the commercial banking system and rediscounted at the central bank instead of being filtered through non-productive government spending.
Capital ownership by people who will use the income from the new capital first to pay for the acquisition of the capital and thereafter for consumption will ensure a sustainable level of demand without creating money for either non-productive consumer debt or non-productive government debt. The Fear Gorta of debt will finally be able to rest in peace.
#30#
Wednesday, October 26, 2011
Halloween Horror Special IX: The Two-Headed Beast
A common theme in many horror movies and television shows (and other genres as well) is the "surprise" twist in the plot in which what you thought was the horrible monster or terrible danger turns out to be what is protecting you from the real horrible monster or terrible danger . . . which usually turns out to be you. This is supposed to help us understand just how depraved and hopeless humanity really is, we're the real monsters, and it's our intolerance, bigotry, stupidity, and all the other things that make us the most vile blot on what would otherwise be a perfect country, world, universe, creation, or whatever, that is causing all the problems.
Of course, like all exaggerations, there is a grain of truth in the cliché. Otherwise, there would be no connection between the viewer and the show — an essential element if entertainment is to, well, entertain. It's all very well to beat your audience over the head with your version of Hollywood Morality (the only real kind . . . according to Hollywood), but if there's no connection with the audience, it's going to remain something that the Great Unwashed just won't understand, no matter how hard you hit them over the head or try to instill feelings of guilt for not buying into your vision.
Be that as it may, we do have a genuine horror story along those lines today. A two-headed beast that, portrayed as a demon monster, turned out to be the Defender of the Human Race . . . or (at least) the financial system.
Obviously, we're talking about the "Glass-Steagall Beast." According to conservatives (and that label doesn't really mean anything these days, but it's handy as a label and to prevent real thought), the second Glass-Steagall (Your first plot twist — there were two acts known as "Glass-Steagall." Nobody remembers the first one.) was a foul creature of the New Deal.
This fiend prevented the financial services industry in the United States from joining forces to compete effectively with the monolithic and powerful European financial services industry that resulted from the introduction of the Euro, and was all set to crush America's financial strength beneath its jackbooted heel . . . unless Glass-Steagall was repealed so that America's financial services industry could afford a couple of pairs of jackboots.
Of course, earlier Glass-Steagall had been partly conquered. The resulting savings and loan debacle had nothing to do with the partial repeal of Glass-Steagall. No way. Absolutely not. It was just a coincidence that the savings and loan industry screwed up by investing in commercial real estate when their competence was in residential real estate.
It is also just a complete coincidence that the formerly separated functions that previously characterized the U.S. financial services industry — commercial banking from investment banking, and insurance from all types of banking — was followed first by immense profits . . . and then by a financial meltdown, just like Europe. It is just a coincidence that had the financial services industry maintained its own internal controls it would have avoided the whole rubber stamp mortgage scenario, aggregation of mortgage-backed securities, money creation for stock market speculation, and massive government bailouts.
Just a coincidence.
Not.
The real story? It was Glass-Steagall that protected the United States from "inter-function collusion" in the financial services industry, to coin a term. The current financial and economic crisis wasn't just a coincidence. The profits for making risky loans for questionable purposes that were guaranteed by the government were immense. The government guarantee added that there could not be a downside, a case of "heads they win, tails we lose."
The increasing flood of government regulations is a foredoomed attempt to try and force people to do what is directly contrary to what the system tells them is in their own best interest. Glass-Steagall made collusion a crime. Its repeal made it a judgment call as to whether the now-legal collusion was really the cause of the disaster, whether it was intended, whether . . . you name it. The bottom line here is that the final repeal of Glass-Steagall changed a matter of objective, verifiable fact into an opinion.
You can prove or disprove a fact. You can't disprove an opinion. And the opinion that remains is just how much the financial services industry can get away with before it either brings about its own destruction, or the State steps in to make matters worse by trying to run the economy.
#30#
Of course, like all exaggerations, there is a grain of truth in the cliché. Otherwise, there would be no connection between the viewer and the show — an essential element if entertainment is to, well, entertain. It's all very well to beat your audience over the head with your version of Hollywood Morality (the only real kind . . . according to Hollywood), but if there's no connection with the audience, it's going to remain something that the Great Unwashed just won't understand, no matter how hard you hit them over the head or try to instill feelings of guilt for not buying into your vision.
Be that as it may, we do have a genuine horror story along those lines today. A two-headed beast that, portrayed as a demon monster, turned out to be the Defender of the Human Race . . . or (at least) the financial system.
Obviously, we're talking about the "Glass-Steagall Beast." According to conservatives (and that label doesn't really mean anything these days, but it's handy as a label and to prevent real thought), the second Glass-Steagall (Your first plot twist — there were two acts known as "Glass-Steagall." Nobody remembers the first one.) was a foul creature of the New Deal.
This fiend prevented the financial services industry in the United States from joining forces to compete effectively with the monolithic and powerful European financial services industry that resulted from the introduction of the Euro, and was all set to crush America's financial strength beneath its jackbooted heel . . . unless Glass-Steagall was repealed so that America's financial services industry could afford a couple of pairs of jackboots.
Of course, earlier Glass-Steagall had been partly conquered. The resulting savings and loan debacle had nothing to do with the partial repeal of Glass-Steagall. No way. Absolutely not. It was just a coincidence that the savings and loan industry screwed up by investing in commercial real estate when their competence was in residential real estate.
It is also just a complete coincidence that the formerly separated functions that previously characterized the U.S. financial services industry — commercial banking from investment banking, and insurance from all types of banking — was followed first by immense profits . . . and then by a financial meltdown, just like Europe. It is just a coincidence that had the financial services industry maintained its own internal controls it would have avoided the whole rubber stamp mortgage scenario, aggregation of mortgage-backed securities, money creation for stock market speculation, and massive government bailouts.
Just a coincidence.
Not.
The real story? It was Glass-Steagall that protected the United States from "inter-function collusion" in the financial services industry, to coin a term. The current financial and economic crisis wasn't just a coincidence. The profits for making risky loans for questionable purposes that were guaranteed by the government were immense. The government guarantee added that there could not be a downside, a case of "heads they win, tails we lose."
The increasing flood of government regulations is a foredoomed attempt to try and force people to do what is directly contrary to what the system tells them is in their own best interest. Glass-Steagall made collusion a crime. Its repeal made it a judgment call as to whether the now-legal collusion was really the cause of the disaster, whether it was intended, whether . . . you name it. The bottom line here is that the final repeal of Glass-Steagall changed a matter of objective, verifiable fact into an opinion.
You can prove or disprove a fact. You can't disprove an opinion. And the opinion that remains is just how much the financial services industry can get away with before it either brings about its own destruction, or the State steps in to make matters worse by trying to run the economy.
#30#
Tuesday, October 25, 2011
Halloween Horror Special VIII: The Materialist Magician
For today's Halloween Horror Special we've got something truly horrific: the rise of the "materialist magician." And what is a "materialist magician," you ask? We'll explain. A materialist magician is someone who uses "magical thinking" in a setting in which faith or reason — or faith and reason — apply, or misuses faith or reason in the wrong sphere. C. S. Lewis used the term to describe someone who rejects the spiritual world, but tries to manipulate it to his or her advantage, anyway. As Lewis conceived it, the materialist magician believes in neither God nor Satan. Thus, the magician gets involved in the spiritual world on the worst possible terms, because he or she rejects the safeguards that belief in God or fear of Satan build in.
That's oversimplified, but you get the idea. For today's Horror Special, we're expanding the term to include both naturalists and supernaturalists (a bad way of putting it, but we're trying to get our daily posting up, and don't really have time to think up or find better words) who use magical thinking in a situation where faith or reason apply. Obviously, we're rejecting James Frazier's theory that humanity moves from magic, to religion, to science. (Don't look for that in those specific words in The Golden Bough — it's from a different work, although that's the theme.)
In particular, we're talking about the materialist magicians who try to change a thing's substantial nature by changing its definition. In both faith and reason, if you can define something, you're well on your way to understanding it. Pursuit of the truth is the thing. Whether you're a scientist or a theologian, you keep studying and investigating the object of your study, and try to discern what is true about it.
In magic, however, things work a little differently. Defining something — naming it, or knowing its true name and nature — allows you to control it. You can even change one thing into another if you can control it to the extent of being able to re-define it. Pursuit of power over others, not truth that gives you power over yourself, is the goal in magic.
The quest for power over others drives both believers and non-believers. In economics, for example, we find it in Keynesian thought as a fundamental principle. In Keynesian theory, the authoritarian State, with total power over the economy, is the ideal. As might be expected, total power is achieved by seizing control of language and re-defining the substantial nature of things, primarily the natural rights of liberty (freedom of association/contract) and property (of which money and credit are applications). As Keynes put it,
"It is a peculiar characteristic of money contracts that it is the State or Community not only which enforces delivery, but also which decides what it is that must be delivered as a lawful or customary discharge of a contract which has been concluded in terms of the money-of-account. The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time — when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of money has been reached that Knapp's Chartalism — the doctrine that money is peculiarly a creation of the State — is fully realized. (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4.)
Keynes was an atheist, but atheists do not have a monopoly on this sort of thing. In fact, those atheists who make a sincere effort to base everything on reason are actually better able to see the errors in Keynes's claims than theists who dismiss Keynesian thought on the grounds of his atheism . . . or accept it without question — little realizing that certain types of theists are wide open to this same error.
Atheists, for example, are in little danger of accepting something simply because the pope, the local imam, your rabbi, the Dalai Lama, Gandhi, or anyone else "said so." This, however, is a trap into which theists fall all too frequently. It is all too easy for a theist to impose his or her private understanding on something said by a religious leader he or she accepts or venerates, and assume that what the theist understands by that something must be exactly what the religious leader meant.
In the Catholic Church the promulgation of the doctrine of papal "infallibility" was (in part) supposed to stop this sort of flawed rationalization. Infallibility doesn't mean that the pope cannot commit an error or sin (that would be "impeccability"), or that something is necessarily true "because the pope said so." Rather, papal infallibility means that the pope is protected from teaching error; it's not that something is true because the pope said so, but that the pope said so because something is true.
Here's the catch: the pope, when teaching as pope, cannot teach error. There is, however, nothing to stop his listeners from filtering what he says through their flawed understanding and hearing error — and promoting it in all sincerity as absolutely infallible.
This, in fact, happens all the time. It's very easy to spot. In general (although not always), when someone responds to a concern expressed by someone who has reached the age of reason with, "Because the pope said so!" (or words to that effect) — without attempting to reason things out — chances are, yes, the pope said something that sounded like that to the one making the declaration. Chances are equally good, however, that the one making the ipse dixit (literally, "He himself said it," an assertion unsupported by evidence or reason; the logical fallacy of "appeal to authority") has no real understanding of what the pope actually meant — or he or she would have been able to explain it, rather than insinuate that the listener was lacking in faith, reason, or both.
At least in Christianity, this is rooted in the great 12th century debate between the followers of Thomas Aquinas, and the followers of John Duns Scotus. Thomists base their understanding of the "natural law" on God's Nature, self-realized in His Intellect, and reflected in the nature of His "special creation," humanity. Thus, by observing human nature (whether or not you believe in God or gods) you can discern "right" and "wrong" through the use of reason alone. Faith is useful to illuminate and broaden your understanding but, with respect to the natural law, is not essential. No one, believer or non-believer, is exempt from the precepts of the natural law. This is a matter of Catholic doctrine, as explained by Pope Pius XII in Humani Generis ("Concerning Some False Opinions Threatening to Undermine the Foundations of Catholic Doctrine") in 1950: "human reason by its own natural force and light can arrive at a true and certain knowledge of the one personal God, Who by His providence watches over and governs the world, and also of the natural law, which the Creator has written in our hearts." (§ 2)
The followers of Duns Scotus distorted Duns Scotus's emphasis on the primacy of the Will, and began asserting that the natural law itself is based on the Will . . . or, more usually (as happened with Michael of Cesena, William of Ockham, Martin Luther, etc., etc.), the believer's faith that something he or she accepts as a revelation of God's Will is to be understood as the believer understands it, and everyone else is to be consigned to perdition. Only believers in a particular revelation can understand it or even accept it, but everyone else is required to abide by it, even though it may go against his or her conscience. Thomists thought this position so flawed and unreasonable that "Dunce" — from Duns Scotus — came to mean someone who is very stupid.
Aquinas himself blasted those who tried to base their arguments on faith instead of reason. According to G. K. Chesterton, this was the second of only two times in Aquinas's life that he became genuinely angry. As Chesterton related the story,
"So, in his last battle and for the first time, he fought as with a battle-axe. There is a ring in the words altogether beyond the almost impersonal patience he maintained in debate with so many enemies. 'Behold our refutation of the error. It is not based on documents of faith, but on the reasons and statements of the philosophers themselves. If then anyone there be who, boastfully taking pride in his supposed wisdom, wishes to challenge what we have written, let him not do it in some corner nor before children who are powerless to decide on such difficult matters. Let him reply openly if he dare. He shall find me there confronting him, and not only my negligible self, but many another whose study is truth. We shall do battle with his errors or bring a cure to his ignorance.'
"The Dumb Ox is bellowing now; like one at bay and yet terrible and towering over all the baying pack. We have already noted why, in this one quarrel with Siger of Brabant, Thomas Aquinas let loose such thunders of purely moral passion; it was because the whole work of his life was being betrayed behind his back. . . . And yet, even in this isolated apocalypse of anger, there is one phrase that may be commended for all time to men who are angry with much less cause. If there is one sentence that could be carved in marble, as representing the calmest and most enduring rationality of his unique intelligence, it is a sentence which came pouring out with all the rest of this molten lava. If there is one phrase that stands before history as typical of Thomas Aquinas, it is that phrase about his own argument: 'It is not based on documents of faith, but on the reasons and statements of the philosophers themselves.' . . . At the top of his fury, Thomas Aquinas understands, what so many defenders of orthodoxy will not understand. It is no good to tell an atheist that he is an atheist; or to charge a denier of immortality with the infamy of denying it; or to imagine that one can force an opponent to admit he is wrong, by proving that he is wrong on somebody else's principles, but not on his own. After the great example of St. Thomas, the principle stands, or ought always to have stood established; that we must either not argue with a man at all, or we must argue on his grounds and not ours." (G. K. Chesterton, Saint Thomas Aquinas: The "Dumb Ox." New York: Image Books, 1956, 94-95.)
"The reasons and statements of the philosophers themselves" indeed! Faith cannot do the work of reason, any more than reason can do the work of faith. Both must go together, but neither one can replace the other — no matter how devoutly the materialist magicians of today want it to be so.
#30#
That's oversimplified, but you get the idea. For today's Horror Special, we're expanding the term to include both naturalists and supernaturalists (a bad way of putting it, but we're trying to get our daily posting up, and don't really have time to think up or find better words) who use magical thinking in a situation where faith or reason apply. Obviously, we're rejecting James Frazier's theory that humanity moves from magic, to religion, to science. (Don't look for that in those specific words in The Golden Bough — it's from a different work, although that's the theme.)
In particular, we're talking about the materialist magicians who try to change a thing's substantial nature by changing its definition. In both faith and reason, if you can define something, you're well on your way to understanding it. Pursuit of the truth is the thing. Whether you're a scientist or a theologian, you keep studying and investigating the object of your study, and try to discern what is true about it.
In magic, however, things work a little differently. Defining something — naming it, or knowing its true name and nature — allows you to control it. You can even change one thing into another if you can control it to the extent of being able to re-define it. Pursuit of power over others, not truth that gives you power over yourself, is the goal in magic.
The quest for power over others drives both believers and non-believers. In economics, for example, we find it in Keynesian thought as a fundamental principle. In Keynesian theory, the authoritarian State, with total power over the economy, is the ideal. As might be expected, total power is achieved by seizing control of language and re-defining the substantial nature of things, primarily the natural rights of liberty (freedom of association/contract) and property (of which money and credit are applications). As Keynes put it,
"It is a peculiar characteristic of money contracts that it is the State or Community not only which enforces delivery, but also which decides what it is that must be delivered as a lawful or customary discharge of a contract which has been concluded in terms of the money-of-account. The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time — when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of money has been reached that Knapp's Chartalism — the doctrine that money is peculiarly a creation of the State — is fully realized. (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4.)
Keynes was an atheist, but atheists do not have a monopoly on this sort of thing. In fact, those atheists who make a sincere effort to base everything on reason are actually better able to see the errors in Keynes's claims than theists who dismiss Keynesian thought on the grounds of his atheism . . . or accept it without question — little realizing that certain types of theists are wide open to this same error.
Atheists, for example, are in little danger of accepting something simply because the pope, the local imam, your rabbi, the Dalai Lama, Gandhi, or anyone else "said so." This, however, is a trap into which theists fall all too frequently. It is all too easy for a theist to impose his or her private understanding on something said by a religious leader he or she accepts or venerates, and assume that what the theist understands by that something must be exactly what the religious leader meant.
In the Catholic Church the promulgation of the doctrine of papal "infallibility" was (in part) supposed to stop this sort of flawed rationalization. Infallibility doesn't mean that the pope cannot commit an error or sin (that would be "impeccability"), or that something is necessarily true "because the pope said so." Rather, papal infallibility means that the pope is protected from teaching error; it's not that something is true because the pope said so, but that the pope said so because something is true.
Here's the catch: the pope, when teaching as pope, cannot teach error. There is, however, nothing to stop his listeners from filtering what he says through their flawed understanding and hearing error — and promoting it in all sincerity as absolutely infallible.
This, in fact, happens all the time. It's very easy to spot. In general (although not always), when someone responds to a concern expressed by someone who has reached the age of reason with, "Because the pope said so!" (or words to that effect) — without attempting to reason things out — chances are, yes, the pope said something that sounded like that to the one making the declaration. Chances are equally good, however, that the one making the ipse dixit (literally, "He himself said it," an assertion unsupported by evidence or reason; the logical fallacy of "appeal to authority") has no real understanding of what the pope actually meant — or he or she would have been able to explain it, rather than insinuate that the listener was lacking in faith, reason, or both.
At least in Christianity, this is rooted in the great 12th century debate between the followers of Thomas Aquinas, and the followers of John Duns Scotus. Thomists base their understanding of the "natural law" on God's Nature, self-realized in His Intellect, and reflected in the nature of His "special creation," humanity. Thus, by observing human nature (whether or not you believe in God or gods) you can discern "right" and "wrong" through the use of reason alone. Faith is useful to illuminate and broaden your understanding but, with respect to the natural law, is not essential. No one, believer or non-believer, is exempt from the precepts of the natural law. This is a matter of Catholic doctrine, as explained by Pope Pius XII in Humani Generis ("Concerning Some False Opinions Threatening to Undermine the Foundations of Catholic Doctrine") in 1950: "human reason by its own natural force and light can arrive at a true and certain knowledge of the one personal God, Who by His providence watches over and governs the world, and also of the natural law, which the Creator has written in our hearts." (§ 2)
The followers of Duns Scotus distorted Duns Scotus's emphasis on the primacy of the Will, and began asserting that the natural law itself is based on the Will . . . or, more usually (as happened with Michael of Cesena, William of Ockham, Martin Luther, etc., etc.), the believer's faith that something he or she accepts as a revelation of God's Will is to be understood as the believer understands it, and everyone else is to be consigned to perdition. Only believers in a particular revelation can understand it or even accept it, but everyone else is required to abide by it, even though it may go against his or her conscience. Thomists thought this position so flawed and unreasonable that "Dunce" — from Duns Scotus — came to mean someone who is very stupid.
Aquinas himself blasted those who tried to base their arguments on faith instead of reason. According to G. K. Chesterton, this was the second of only two times in Aquinas's life that he became genuinely angry. As Chesterton related the story,
"So, in his last battle and for the first time, he fought as with a battle-axe. There is a ring in the words altogether beyond the almost impersonal patience he maintained in debate with so many enemies. 'Behold our refutation of the error. It is not based on documents of faith, but on the reasons and statements of the philosophers themselves. If then anyone there be who, boastfully taking pride in his supposed wisdom, wishes to challenge what we have written, let him not do it in some corner nor before children who are powerless to decide on such difficult matters. Let him reply openly if he dare. He shall find me there confronting him, and not only my negligible self, but many another whose study is truth. We shall do battle with his errors or bring a cure to his ignorance.'
"The Dumb Ox is bellowing now; like one at bay and yet terrible and towering over all the baying pack. We have already noted why, in this one quarrel with Siger of Brabant, Thomas Aquinas let loose such thunders of purely moral passion; it was because the whole work of his life was being betrayed behind his back. . . . And yet, even in this isolated apocalypse of anger, there is one phrase that may be commended for all time to men who are angry with much less cause. If there is one sentence that could be carved in marble, as representing the calmest and most enduring rationality of his unique intelligence, it is a sentence which came pouring out with all the rest of this molten lava. If there is one phrase that stands before history as typical of Thomas Aquinas, it is that phrase about his own argument: 'It is not based on documents of faith, but on the reasons and statements of the philosophers themselves.' . . . At the top of his fury, Thomas Aquinas understands, what so many defenders of orthodoxy will not understand. It is no good to tell an atheist that he is an atheist; or to charge a denier of immortality with the infamy of denying it; or to imagine that one can force an opponent to admit he is wrong, by proving that he is wrong on somebody else's principles, but not on his own. After the great example of St. Thomas, the principle stands, or ought always to have stood established; that we must either not argue with a man at all, or we must argue on his grounds and not ours." (G. K. Chesterton, Saint Thomas Aquinas: The "Dumb Ox." New York: Image Books, 1956, 94-95.)
"The reasons and statements of the philosophers themselves" indeed! Faith cannot do the work of reason, any more than reason can do the work of faith. Both must go together, but neither one can replace the other — no matter how devoutly the materialist magicians of today want it to be so.
#30#
Monday, October 24, 2011
Halloween Horror Special VIIe: Hell Money
The closer we get to Halloween, the more obvious it becomes that something is seriously wrong with the global economy — as if the past three years haven't given us a less than subtle hint. The "Occupy Wall Street" movement has, as is inevitable, exploded into violence as frustration grows as a result of expectations based on false assumptions. The State has been presented as the only savior — as one enthusiast put it, "the sole intercessor available to the poor" — and the private sector ("the corporations") as incorrigible villains beyond all hope of redemption that must be destroyed, humbled, or brought under State control so the government can run things properly.
Can, however, the State do a better job of running the economy than the private sector? As we have seen in the previous posting in this series, the State hasn't done such a great job of creating money in a way that stimulates wealth production and sustainable job creation. This suggests that the private sector — if allowed to operate in accordance with sound principles of justice and common sense — might be able to do better.
In contrast to State-issued or sanctioned money backed by the present value of future tax collections (that may or may not actually be collected), private sector money in the form of bills of exchange (which take a seemingly infinite number of forms) is backed by the present value of existing and future marketable goods and services owned by the issuer. Technically, a bill of exchange backed by existing marketable goods and services is called a "mortgage." A bill of exchange backed by the general creditworthiness of the issuer — that is, the future marketable goods and services the issuer expects to produce or obtain — is (somewhat confusingly) also called a bill of exchange.
We've heard a lot of talk about "derivatives" in recent years. "Derivative" is simply the modern term for a bill. All money is derived from the present value of existing and future marketable goods and services, and can take any form to which the contracting parties agree.
In the Just Third Way analysis, we've found that the old distinction between "real bills" and "fictitious bills" much more useful than the new term "derivative." As Henry Thornton, the "Father of Central Banking," pointed out in his Enquiry into the Nature and Effects of the Paper Credit of Great Britain (1802), anything with a present value can back a "real bill," so-called because it represents real value. The backing of a fictitious bill, on the other hand, either doesn't exist (the instrument is fraudulent), or has an uncertain or indiscernible present value.
Applying Thornton's analytical framework to the recent housing bubble, the bursting of which triggered the current "recession," we see that massive amounts of private sector money were issued — "bills drawn" (derivatives created) — backed by "dodgy" mortgages, paradoxically backed by government guarantees . . . private sector money presumably backed by the present value of existing marketable goods and services, but in reality by the present value of future tax collections that the electorate had not granted. The massive amounts of "mortgage backed securities" were thus, in fact, not "real bills at all," but "fictitious bills" — fraudulent instruments issued by the private sector but effectively sanctioned by the government!
It is no wonder, then, that the whole thing caved in. Nor is it any wonder that we can't seem to get out of the pit by applying as a remedy the same thing that got us into trouble in the first place. As Lawrence Summers declared in his column in today's Washington Post, "The central irony of a financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it can be resolved only with more confidence, borrowing and lending and spending." That's like saying that pain in your head that was caused by hitting yourself repeatedly with a hammer can only be solved by continuing to hit yourself on the head with a hammer . . . only harder. (That's the "horror" part of today's posting.)
With that kind of thinking, it's no wonder nothing seems to work. Avoiding the whole issue of good uses of credit as opposed to bad uses of credit makes it sound as if spending alone is going to get us out of the hole. That's one-third right. Spending on new capital formation — production — using pure credit financing and limiting all consumption spending (including government and Wall Street speculation) to existing savings is the only way to reverse a century or more of using pure credit financing on consumption. Making certain that all the new capital financed in this way is broadly owned so that the income is used first to pay for capital acquisition and then consumption will keep the economy running at full speed without bailouts or government-induced inflation.
#30#
Can, however, the State do a better job of running the economy than the private sector? As we have seen in the previous posting in this series, the State hasn't done such a great job of creating money in a way that stimulates wealth production and sustainable job creation. This suggests that the private sector — if allowed to operate in accordance with sound principles of justice and common sense — might be able to do better.
In contrast to State-issued or sanctioned money backed by the present value of future tax collections (that may or may not actually be collected), private sector money in the form of bills of exchange (which take a seemingly infinite number of forms) is backed by the present value of existing and future marketable goods and services owned by the issuer. Technically, a bill of exchange backed by existing marketable goods and services is called a "mortgage." A bill of exchange backed by the general creditworthiness of the issuer — that is, the future marketable goods and services the issuer expects to produce or obtain — is (somewhat confusingly) also called a bill of exchange.
We've heard a lot of talk about "derivatives" in recent years. "Derivative" is simply the modern term for a bill. All money is derived from the present value of existing and future marketable goods and services, and can take any form to which the contracting parties agree.
In the Just Third Way analysis, we've found that the old distinction between "real bills" and "fictitious bills" much more useful than the new term "derivative." As Henry Thornton, the "Father of Central Banking," pointed out in his Enquiry into the Nature and Effects of the Paper Credit of Great Britain (1802), anything with a present value can back a "real bill," so-called because it represents real value. The backing of a fictitious bill, on the other hand, either doesn't exist (the instrument is fraudulent), or has an uncertain or indiscernible present value.
Applying Thornton's analytical framework to the recent housing bubble, the bursting of which triggered the current "recession," we see that massive amounts of private sector money were issued — "bills drawn" (derivatives created) — backed by "dodgy" mortgages, paradoxically backed by government guarantees . . . private sector money presumably backed by the present value of existing marketable goods and services, but in reality by the present value of future tax collections that the electorate had not granted. The massive amounts of "mortgage backed securities" were thus, in fact, not "real bills at all," but "fictitious bills" — fraudulent instruments issued by the private sector but effectively sanctioned by the government!
It is no wonder, then, that the whole thing caved in. Nor is it any wonder that we can't seem to get out of the pit by applying as a remedy the same thing that got us into trouble in the first place. As Lawrence Summers declared in his column in today's Washington Post, "The central irony of a financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it can be resolved only with more confidence, borrowing and lending and spending." That's like saying that pain in your head that was caused by hitting yourself repeatedly with a hammer can only be solved by continuing to hit yourself on the head with a hammer . . . only harder. (That's the "horror" part of today's posting.)
With that kind of thinking, it's no wonder nothing seems to work. Avoiding the whole issue of good uses of credit as opposed to bad uses of credit makes it sound as if spending alone is going to get us out of the hole. That's one-third right. Spending on new capital formation — production — using pure credit financing and limiting all consumption spending (including government and Wall Street speculation) to existing savings is the only way to reverse a century or more of using pure credit financing on consumption. Making certain that all the new capital financed in this way is broadly owned so that the income is used first to pay for capital acquisition and then consumption will keep the economy running at full speed without bailouts or government-induced inflation.
#30#
Thursday, October 20, 2011
Halloween Horror Special VIId: Hell Money
The "hell money" phenomenon that has ravaged the global economy — and which the Powers-that-Be insist must be maintained at all cost — is based solidly (if something built on shifting sand can be called "solid") on a number of fallacies. That is, one, money represents the present value only of existing marketable goods and services in an economy. Two, only the State has the right to create money. Three, the only way to finance new capital investment — or anything else — is to cut consumption, accumulate money, and then spend it, whether on new investment or consumption.
Consequently, if money represents only the present value of existing marketable goods and services in the economy, and only the State has the right to issue claims against these marketable goods and services, the quantity of money is, in a sense, irrelevant from a macroeconomic standpoint. All the State does by printing up more hell money is to divide the existing pie into smaller and smaller pieces. Some microeconomic "adjustments" necessarily take place, but the Big Picture is okay, and everything's fine. A little redistribution through direct taxation or the hidden tax of inflation, and things will stay on an even keel.
The whole theory of Keynesian "forced savings" relies on manipulating the currency through inflation. In the system dictated by the "Currency Principle," that is, that money consists exclusively of coin, banknotes, demand deposits and some time deposits, all money is presumably backed only by the present value of existing marketable goods and services. This is because the State, that issues the currency, is believed to have effective ownership of all the wealth of the economy through its power to tax.
Thus, within the Currency Principle paradigm, it is impossible for a State to issue too much money backed by its own promise to pay. If all money is backed by the general wealth of the economy on which the State has a claim, all that is being done when the State inflates the currency is (as we noted) to divide existing wealth into smaller and smaller pieces. Wealth is redistributed by this means, but the amount of money cannot possibly exceed the State's ability to make good on its promises, even if — in theory — the tax rate is 100% on all wealth, and the economy becomes socialist in name as well as in fact.
Unfortunately there are many things wrong with the basic theory of the Currency School. Most obvious is the fact that taxation is not an exercise of the State's ultimate property in the wealth of the economy, as Thomas Hobbes, the totalitarian philosopher, asserted. Rather, as John Locke reminded us, taxation is a grant from the citizens to cover the costs of government, and is illegitimate without their consent.
Then there's the problem of limiting our understanding of money to State-issued or sanctioned coin, banknotes, demand deposits, and limited time deposits. This leaves out private sector issued bills of exchange that constitute the bulk of the money supply in non-socialist or partially socialist economies.
In the United States, for example, Congressman George Tucker estimated that in the 1830s private sector bills of exchange, not coin or banknotes, amounted to between 95-99% of the money supply. In 1916, Dr. Harold Moulton reported that the money supply appeared to be predominantly private sector bills of exchange, between 75-80%. Even as late as 2008, when the State has gained far more control over the economy than the Founding Fathers ever imagined possible, a rough calculation suggests that as much as 60% of the transactions in the economy were carried out by means of privately issued bills of exchange.
One problem with the Currency Principle that is not obvious is that the backing of the money is not limited to the present value of existing marketable goods and services. The only State-issued money that meets this criterion is the United States Note (the historical vestige of the old "greenback"), by law backed by gold — but not convertible into gold!
All other State-issued money — coin, Federal Reserve Notes, and commercial bank demand deposits at the Federal Reserve — are backed by the present value of future tax collections. These rely on the "faith and credit" of the issuing government to be good.
What this means is that, if the government is strong enough to collect sufficient taxes in the future to redeem its promises, then the currency will be sound. If the government isn't strong enough to collect taxes, the citizens refuse to grant the taxes, or there is insufficient production in the economy to maintain the tax base, then the currency will fall in value and, in extreme cases, become worthless.
Thus we can understand why Keynes, trapped within the Currency Principle, insisted that the State must have absolute power, and be able to "re-edit the dictionary" (redefine substantial reality) at need or will — effectively become a god — in order to try and force a system based on ghosts and shadows to work in spite of reality. In the Keynesian world, the private sector exists only to serve the State, not the other way around.
#30#
Consequently, if money represents only the present value of existing marketable goods and services in the economy, and only the State has the right to issue claims against these marketable goods and services, the quantity of money is, in a sense, irrelevant from a macroeconomic standpoint. All the State does by printing up more hell money is to divide the existing pie into smaller and smaller pieces. Some microeconomic "adjustments" necessarily take place, but the Big Picture is okay, and everything's fine. A little redistribution through direct taxation or the hidden tax of inflation, and things will stay on an even keel.
The whole theory of Keynesian "forced savings" relies on manipulating the currency through inflation. In the system dictated by the "Currency Principle," that is, that money consists exclusively of coin, banknotes, demand deposits and some time deposits, all money is presumably backed only by the present value of existing marketable goods and services. This is because the State, that issues the currency, is believed to have effective ownership of all the wealth of the economy through its power to tax.
Thus, within the Currency Principle paradigm, it is impossible for a State to issue too much money backed by its own promise to pay. If all money is backed by the general wealth of the economy on which the State has a claim, all that is being done when the State inflates the currency is (as we noted) to divide existing wealth into smaller and smaller pieces. Wealth is redistributed by this means, but the amount of money cannot possibly exceed the State's ability to make good on its promises, even if — in theory — the tax rate is 100% on all wealth, and the economy becomes socialist in name as well as in fact.
Unfortunately there are many things wrong with the basic theory of the Currency School. Most obvious is the fact that taxation is not an exercise of the State's ultimate property in the wealth of the economy, as Thomas Hobbes, the totalitarian philosopher, asserted. Rather, as John Locke reminded us, taxation is a grant from the citizens to cover the costs of government, and is illegitimate without their consent.
Then there's the problem of limiting our understanding of money to State-issued or sanctioned coin, banknotes, demand deposits, and limited time deposits. This leaves out private sector issued bills of exchange that constitute the bulk of the money supply in non-socialist or partially socialist economies.
In the United States, for example, Congressman George Tucker estimated that in the 1830s private sector bills of exchange, not coin or banknotes, amounted to between 95-99% of the money supply. In 1916, Dr. Harold Moulton reported that the money supply appeared to be predominantly private sector bills of exchange, between 75-80%. Even as late as 2008, when the State has gained far more control over the economy than the Founding Fathers ever imagined possible, a rough calculation suggests that as much as 60% of the transactions in the economy were carried out by means of privately issued bills of exchange.
One problem with the Currency Principle that is not obvious is that the backing of the money is not limited to the present value of existing marketable goods and services. The only State-issued money that meets this criterion is the United States Note (the historical vestige of the old "greenback"), by law backed by gold — but not convertible into gold!
All other State-issued money — coin, Federal Reserve Notes, and commercial bank demand deposits at the Federal Reserve — are backed by the present value of future tax collections. These rely on the "faith and credit" of the issuing government to be good.
What this means is that, if the government is strong enough to collect sufficient taxes in the future to redeem its promises, then the currency will be sound. If the government isn't strong enough to collect taxes, the citizens refuse to grant the taxes, or there is insufficient production in the economy to maintain the tax base, then the currency will fall in value and, in extreme cases, become worthless.
Thus we can understand why Keynes, trapped within the Currency Principle, insisted that the State must have absolute power, and be able to "re-edit the dictionary" (redefine substantial reality) at need or will — effectively become a god — in order to try and force a system based on ghosts and shadows to work in spite of reality. In the Keynesian world, the private sector exists only to serve the State, not the other way around.
#30#
Wednesday, October 19, 2011
Halloween Horror Special VIIc: Hell Money, or, "Are You a Good Witch, or a Bad Witch?"
There has been a great deal of anger, even rage, directed against our "interest-bearing, debt-backed money supply." There is a measure of truth in the assertion that the medium of exchange throughout the world is burdened with debt, and that the holders of that debt receive interest on it — but only a measure. Discovering that the U.S. dollar (and every other currency on the face of the earth) is backed primarily by debt is, however, a little like discovering — and revealing as something shocking — the fact that the earth is round and revolves around the sun. As for interest, the greater part of the U.S. money supply is not even today, in strict point of fact, backed by interest-paying government securities. It consists of discounted and rediscounted private sector bills of exchange that pass at a value reflecting the present value of the instrument and a "risk premium."
The fact is, in yesterday's posting we discovered that all money is "debt-backed," that is, is a promise, a contract to deliver the present value of marketable goods and services when the issuer redeems the money, that is, makes good on the promise conveyed by the contract. To some people, this means that all money is inherently evil, the "root of all evil," as some have distorted St. Paul's dictum in his letter to Timothy.
That being the case, it's a little like asking if someone is a good witch, or a bad witch. The fact of witchery is, evidently, not a matter for question. The only concern is whether actual good or evil is being done, regardless of the presumably inherent evil already established. Thus, the real issue is whether the promise — the debt — that stands behind the money is a good promise, supported by the present value of existing or future marketable goods and services in which the issuer has a property right or the ability to take what belongs to others to satisfy the debt when presented for redemption (as the state has with its power to tax), or a bad promise, supported by nothing that has a defined present value.
Today, most currency (only a part of the total money supply — and usually the smallest part) is backed by government debt. If the government's power to tax remains effective, the currency is usually sound. If the government's power to tax is ineffective or there is nothing to tax, the currency is usually unsound. Still, this raises the question as to how the State got involved in the business at all. Confined to its proper role, the State doesn't produce marketable goods and services. How did it get into having anything to do with the medium whereby people exchange marketable goods and services?
The State got into the money business by default. When coins began to circulate outside the area in which a private issuer's name was recognized and trusted, it made sense that the certifying authority be the political authority, backing the promise conveyed by the coin with the full faith and credit of the State instead of a private individual, and that had the judicial power to enforce the contract.
Of course, as the body charged with adjudicating contracts in the event of a dispute, the State has had, from the beginning, the responsibility of regulating money. If two private individuals are fighting over whether or not the terms of a contract have been met, some presumably neutral third party had to step in and pass judgment — and keep the peace so that the disgruntled party didn't "settle" the dispute by killing the other party.
Of course, putting the State in the place of the adjudicator and regulator assumes that the State can be trusted. That means that the State has to be accountable to its citizens in some fashion. To make certain that the State would keep its word in the ancient world, many early coins were stamped with the image of the State's patron deity. This made the promise conveyed by the coin into a sacred oath, with the god or goddess as a witness, ready to punish with eternal damnation the blasphemous ruler who cheated the citizens by shorting the amount of metal in the coin, and made counterfeiting or clipping (removing metal from the coin) sacrilege.
Unfortunately, governments early on found that, with respect to coinage as in other things, they could say one thing and do another, and the gods wouldn't take (immediate) revenge. Typically, a government would put less metal into its coins than was stated on the face. Usually this was justified on the grounds that in this way the government could cover the cost of minting the coins. The government would otherwise have to raise taxes or user fees — never a popular move, even in an absolutist State or under a tyranny. It's much easier to protect power, even absolute power, by controlling money and credit (two sides of the same coin, so to speak), thereby hiding the true state of affairs from the public, as Henry C. Adams pointed out in Public Debts: An Essay in the Science of Finance (1898).
In theory, of course, regardless of the actual weight of metal in each coin, the government bound itself to deliver the full weight of metal or the value thereof when presented with one of its coins. It didn't work out that way in practice, however. While originally the same, weights used in commerce, and weights used in coins soon became different. A pennyweight (dwt) of 24 grains, for example, has been, through most of history, much heavier than the penny purportedly containing a pennyweight of silver.
Seniorage or agio — the difference between the face value and the value of the medium out of which the money is made — is thus a liability of the issuer. In the accounting equation, Assets = Liabilities plus Equity (with Equity divided into Owners Equity and Retained Earnings), seniorage goes on the right side of the equation, Liabilities and Equity.
Unfortunately, profit also goes on the right side of the accounting equation, where, if it isn't paid out as dividends to the shareholders, it is accumulated as retained earnings. Almost inevitably, governments confused the liability that they owed the public that accepted their coins, with a profit made from issuing coins with less metal than was stated on the face. It's as if a business made a journal entry shifting a bill from an outside vendor from Accounts Payable to Income, and then proclaimed that profits had increased by that amount — and simply refused to redeem their promise when the holder in due course of the bill presented it for payment.
This sounds dishonest — and it is. It is also common practice among governments. In the old days, when the currency was predominantly gold and silver coin, the temptation was often too much to resist for a government in financial trouble. Instead of making things better by fostering agriculture, commerce and industry, however, thereby increasing the tax base, it has often been thought much easier (and more profitable) simply to put less metal in the coin than is stated on the face. This shifts value from those who accept the coin, to those who issue it, as well as from consumers who pay more for fewer goods and services, to producers who make a greater profit on sales.
That being the case, where did we ever get the idea that having the State go into debt by "printing money" — making promises it can't possibly keep — is somehow a good thing?
#30#
The fact is, in yesterday's posting we discovered that all money is "debt-backed," that is, is a promise, a contract to deliver the present value of marketable goods and services when the issuer redeems the money, that is, makes good on the promise conveyed by the contract. To some people, this means that all money is inherently evil, the "root of all evil," as some have distorted St. Paul's dictum in his letter to Timothy.
That being the case, it's a little like asking if someone is a good witch, or a bad witch. The fact of witchery is, evidently, not a matter for question. The only concern is whether actual good or evil is being done, regardless of the presumably inherent evil already established. Thus, the real issue is whether the promise — the debt — that stands behind the money is a good promise, supported by the present value of existing or future marketable goods and services in which the issuer has a property right or the ability to take what belongs to others to satisfy the debt when presented for redemption (as the state has with its power to tax), or a bad promise, supported by nothing that has a defined present value.
Today, most currency (only a part of the total money supply — and usually the smallest part) is backed by government debt. If the government's power to tax remains effective, the currency is usually sound. If the government's power to tax is ineffective or there is nothing to tax, the currency is usually unsound. Still, this raises the question as to how the State got involved in the business at all. Confined to its proper role, the State doesn't produce marketable goods and services. How did it get into having anything to do with the medium whereby people exchange marketable goods and services?
The State got into the money business by default. When coins began to circulate outside the area in which a private issuer's name was recognized and trusted, it made sense that the certifying authority be the political authority, backing the promise conveyed by the coin with the full faith and credit of the State instead of a private individual, and that had the judicial power to enforce the contract.
Of course, as the body charged with adjudicating contracts in the event of a dispute, the State has had, from the beginning, the responsibility of regulating money. If two private individuals are fighting over whether or not the terms of a contract have been met, some presumably neutral third party had to step in and pass judgment — and keep the peace so that the disgruntled party didn't "settle" the dispute by killing the other party.
Of course, putting the State in the place of the adjudicator and regulator assumes that the State can be trusted. That means that the State has to be accountable to its citizens in some fashion. To make certain that the State would keep its word in the ancient world, many early coins were stamped with the image of the State's patron deity. This made the promise conveyed by the coin into a sacred oath, with the god or goddess as a witness, ready to punish with eternal damnation the blasphemous ruler who cheated the citizens by shorting the amount of metal in the coin, and made counterfeiting or clipping (removing metal from the coin) sacrilege.
Unfortunately, governments early on found that, with respect to coinage as in other things, they could say one thing and do another, and the gods wouldn't take (immediate) revenge. Typically, a government would put less metal into its coins than was stated on the face. Usually this was justified on the grounds that in this way the government could cover the cost of minting the coins. The government would otherwise have to raise taxes or user fees — never a popular move, even in an absolutist State or under a tyranny. It's much easier to protect power, even absolute power, by controlling money and credit (two sides of the same coin, so to speak), thereby hiding the true state of affairs from the public, as Henry C. Adams pointed out in Public Debts: An Essay in the Science of Finance (1898).
In theory, of course, regardless of the actual weight of metal in each coin, the government bound itself to deliver the full weight of metal or the value thereof when presented with one of its coins. It didn't work out that way in practice, however. While originally the same, weights used in commerce, and weights used in coins soon became different. A pennyweight (dwt) of 24 grains, for example, has been, through most of history, much heavier than the penny purportedly containing a pennyweight of silver.
Seniorage or agio — the difference between the face value and the value of the medium out of which the money is made — is thus a liability of the issuer. In the accounting equation, Assets = Liabilities plus Equity (with Equity divided into Owners Equity and Retained Earnings), seniorage goes on the right side of the equation, Liabilities and Equity.
Unfortunately, profit also goes on the right side of the accounting equation, where, if it isn't paid out as dividends to the shareholders, it is accumulated as retained earnings. Almost inevitably, governments confused the liability that they owed the public that accepted their coins, with a profit made from issuing coins with less metal than was stated on the face. It's as if a business made a journal entry shifting a bill from an outside vendor from Accounts Payable to Income, and then proclaimed that profits had increased by that amount — and simply refused to redeem their promise when the holder in due course of the bill presented it for payment.
This sounds dishonest — and it is. It is also common practice among governments. In the old days, when the currency was predominantly gold and silver coin, the temptation was often too much to resist for a government in financial trouble. Instead of making things better by fostering agriculture, commerce and industry, however, thereby increasing the tax base, it has often been thought much easier (and more profitable) simply to put less metal in the coin than is stated on the face. This shifts value from those who accept the coin, to those who issue it, as well as from consumers who pay more for fewer goods and services, to producers who make a greater profit on sales.
That being the case, where did we ever get the idea that having the State go into debt by "printing money" — making promises it can't possibly keep — is somehow a good thing?
#30#
Tuesday, October 18, 2011
Halloween Horror Special VIIb: Hell Money
In the previous posting in this series of Halloween Horror Specials, we saw that most governments today rely on hell money to keep the economy running. As such currency is created for and by ghosts and shadows (or, if you prefer, smoke and mirrors), something is bound to give way whenever reality happens to intrude on the fantasies of politicians and academics that keep assuring us that "all is (or will be) well" . . . as long as we continue to believe every word they say.
What, however, are we to do if we lose faith in the fantasy and have to take refuge in reality? We have to establish justice somehow in order to ensure our domestic tranquility . . . and put food on the table (or, better yet, in a dish on the table).
The first step in achieving monetary justice is to understand that "money" doesn't consist exclusively of hell money: State-issued or sanctioned coin, banknotes, or (if you're broadminded) demand deposits (checking accounts) and some time deposits (savings accounts) with only the State's word behind it, or even gold and silver coin.
The second step is realize that money is anything that can be used to settle a debt, and that money and credit (two forms of the same thing) are simply contracts — promises — conveying a right to receive some marketable good or service or the value thereof on demand or on the occurrence of some future event. Understood properly, all money is thus "debt backed." The only real question is whether the issuer of the money has the ability to make good on the promise conveyed by the money, that is, redeem the debt.
The third step is to grasp the fact that a contract can be turned into a "negotiable instrument" and circulate beyond the original parties to the contract, as long as the original group or individual making the promise remains liable for making good on the promise when presented for redemption by a holder in due course. In this way, "money" turns into "currency," that is, "current money," money that passes "current" in the economy.
This was how the original currency, "coin," was invented in the West. People took lumps of gold, silver or electrum (a naturally occurring alloy of gold and silver), and turned the commodities into miniature contracts by stamping their personal guarantees — endorsements — as to the amount of metal in the coin.
The earliest known coin found in the West is one such lump of electrum, found in the Temple of Diana at Ephesus, bearing the statement, "I am the mark of Phanes." By making this statement, Phanes was certifying that the coin contained the full weight of metal and binding himself to make good any shortage — a contract.
In modern terms, Phanes was a banker, defining a bank as a financial institution that takes deposits, makes loans, and issues promissory notes — the latter being the most important of a bank. He could (and did) "create money" by offering his contract and having it accepted by the public.
For thousands of years before the invention of coinage, all money consisted of promises — "debts" — conveyed either by word or in written form, whether written on clay tablets, animal skin, papyrus, or some other material. The vast majority of documents surviving from the ancient world consist of such "bills of exchange," that is, money issued by private individuals to carry out exchanges with other private individuals.
Similarly, to this day, the bulk of any money supply in a non-socialist economy consists of "merchants" or "trade acceptances," and "banker's acceptances." No matter who issues the instrument, and regardless what form it takes, the instrument isn't "money" until and unless it is "accepted" in a transaction and settles a debt.
Phanes's coin was, strictly speaking, a promissory note, a form of a bill of exchange. The contract was between Phanes and any holder in due course, and consisted of Phanes's promise that the coin contained the full weight of metal. The difference between a promissory note and a bill of exchange proper is that a promissory note is endorsed once by the issuer and passes at face value until redeemed by the issuer. A bill of exchange is endorsed by each holder in due course of the bill, and passes at the present value of the bill (usually a discount from the face) until redeemed at its face value by the issuer.
If money is backed by the issuer's property in the present value of marketable goods and services, and in a free market economy the State neither owns nor controls the means of production, how did the State get into the money business?
#30#
What, however, are we to do if we lose faith in the fantasy and have to take refuge in reality? We have to establish justice somehow in order to ensure our domestic tranquility . . . and put food on the table (or, better yet, in a dish on the table).
The first step in achieving monetary justice is to understand that "money" doesn't consist exclusively of hell money: State-issued or sanctioned coin, banknotes, or (if you're broadminded) demand deposits (checking accounts) and some time deposits (savings accounts) with only the State's word behind it, or even gold and silver coin.
The second step is realize that money is anything that can be used to settle a debt, and that money and credit (two forms of the same thing) are simply contracts — promises — conveying a right to receive some marketable good or service or the value thereof on demand or on the occurrence of some future event. Understood properly, all money is thus "debt backed." The only real question is whether the issuer of the money has the ability to make good on the promise conveyed by the money, that is, redeem the debt.
The third step is to grasp the fact that a contract can be turned into a "negotiable instrument" and circulate beyond the original parties to the contract, as long as the original group or individual making the promise remains liable for making good on the promise when presented for redemption by a holder in due course. In this way, "money" turns into "currency," that is, "current money," money that passes "current" in the economy.
This was how the original currency, "coin," was invented in the West. People took lumps of gold, silver or electrum (a naturally occurring alloy of gold and silver), and turned the commodities into miniature contracts by stamping their personal guarantees — endorsements — as to the amount of metal in the coin.
The earliest known coin found in the West is one such lump of electrum, found in the Temple of Diana at Ephesus, bearing the statement, "I am the mark of Phanes." By making this statement, Phanes was certifying that the coin contained the full weight of metal and binding himself to make good any shortage — a contract.
In modern terms, Phanes was a banker, defining a bank as a financial institution that takes deposits, makes loans, and issues promissory notes — the latter being the most important of a bank. He could (and did) "create money" by offering his contract and having it accepted by the public.
For thousands of years before the invention of coinage, all money consisted of promises — "debts" — conveyed either by word or in written form, whether written on clay tablets, animal skin, papyrus, or some other material. The vast majority of documents surviving from the ancient world consist of such "bills of exchange," that is, money issued by private individuals to carry out exchanges with other private individuals.
Similarly, to this day, the bulk of any money supply in a non-socialist economy consists of "merchants" or "trade acceptances," and "banker's acceptances." No matter who issues the instrument, and regardless what form it takes, the instrument isn't "money" until and unless it is "accepted" in a transaction and settles a debt.
Phanes's coin was, strictly speaking, a promissory note, a form of a bill of exchange. The contract was between Phanes and any holder in due course, and consisted of Phanes's promise that the coin contained the full weight of metal. The difference between a promissory note and a bill of exchange proper is that a promissory note is endorsed once by the issuer and passes at face value until redeemed by the issuer. A bill of exchange is endorsed by each holder in due course of the bill, and passes at the present value of the bill (usually a discount from the face) until redeemed at its face value by the issuer.
If money is backed by the issuer's property in the present value of marketable goods and services, and in a free market economy the State neither owns nor controls the means of production, how did the State get into the money business?
#30#
Monday, October 17, 2011
Halloween Horror Special VIIa: Hell Money
Occidentals often find the Oriental practice of burning paper houses, pictures of goods, and "banknotes" issued in astronomical denominations ostensibly by the "Bank of Hell" or some such institution, either naïve or quaintly humorous. The idea is that by burning such "ghost" or "hell" wealth, their deceased relatives and friends will be provided with the actual spirit wealth in the next life as a means of enjoying the hereafter in comfort.
High denomination "hell money" — some of it in the billions — is justified on two counts, aside from inflation. One, why deprive your dead relatives unnecessarily of the wherewithal to enjoy their death by omitting zeroes that cost nothing to add? Two, the wealth has to last for eternity, so stinting doesn't make any sense.
The western tradition was, of course, much more sensible. In ancient times people buried or burned the actual wealth. In the first case this was an open invitation to grave robbing and destruction of the body to avoid ghostly revenge for theft. In the second case, it deprived the living of the benefit of the wealth permanently.
The West in our day, however, has improved greatly on both traditions. Governments today issue massive amounts of ghost money not for the dead, but for the living, to be redeemed by future generations. The living are not charged with the maintenance of the dead. Rather, the unborn of future generations are charged with the maintenance of the living.
This method of money creation adds zeroes to the denominations of the currency that effectively costs nothing except for printing, and at the same time deprives the living of wealth by burning it in the magic fire of inflation. Who cares if there's nothing of real value behind the currency? As long as the currency is backed by the State's promise, the only thing necessary for things to keep going is sufficient faith in the State.
Clearly this understanding of money precludes any respect for the dignity of the human person. Everyone becomes a "mere creature of the State" when the State controls all agriculture, commerce, and industry through the control of money and credit. There is no possibility of justice in an economic system based on ghost money.
What we need is a new understanding of money and credit that takes it out of the realm of ghosts and demons, and brings it back to earth where it can be placed at the service of humanity through conformity with the natural law based not on someone's understanding of God's (or the gods') Will, but on Nature — or the common understanding of all humanity as to right and wrong, an understanding that, in Jewish, Christian and Islamic thought is a reflection of God's Nature, self-realized in His Intellect. Whether or not you believe that, the bottom line is that "right" and "wrong" are discernible by reason alone, not faith. Faith can illuminate and deepen the understanding that reason brings, but cannot substitute for it, however fervent that faith may be.
The chief precept of the natural law is that good is to be done, evil avoided. Putting it another way, humanity's job on this earth — whatever religion or philosophy is followed — is to acquire and develop virtue. Virtue is the habit of doing good. The chief "temporal virtue," that is, the primary virtue above all others for which humanity has the natural capacity to acquire and develop, is justice. To have a rational money system, then, it must be just.
The obvious question now is, what must we do if we are to replace hell money in the economy with something more suited to use by the living instead of the dead or unborn?
#30#
High denomination "hell money" — some of it in the billions — is justified on two counts, aside from inflation. One, why deprive your dead relatives unnecessarily of the wherewithal to enjoy their death by omitting zeroes that cost nothing to add? Two, the wealth has to last for eternity, so stinting doesn't make any sense.
The western tradition was, of course, much more sensible. In ancient times people buried or burned the actual wealth. In the first case this was an open invitation to grave robbing and destruction of the body to avoid ghostly revenge for theft. In the second case, it deprived the living of the benefit of the wealth permanently.
The West in our day, however, has improved greatly on both traditions. Governments today issue massive amounts of ghost money not for the dead, but for the living, to be redeemed by future generations. The living are not charged with the maintenance of the dead. Rather, the unborn of future generations are charged with the maintenance of the living.
This method of money creation adds zeroes to the denominations of the currency that effectively costs nothing except for printing, and at the same time deprives the living of wealth by burning it in the magic fire of inflation. Who cares if there's nothing of real value behind the currency? As long as the currency is backed by the State's promise, the only thing necessary for things to keep going is sufficient faith in the State.
Clearly this understanding of money precludes any respect for the dignity of the human person. Everyone becomes a "mere creature of the State" when the State controls all agriculture, commerce, and industry through the control of money and credit. There is no possibility of justice in an economic system based on ghost money.
What we need is a new understanding of money and credit that takes it out of the realm of ghosts and demons, and brings it back to earth where it can be placed at the service of humanity through conformity with the natural law based not on someone's understanding of God's (or the gods') Will, but on Nature — or the common understanding of all humanity as to right and wrong, an understanding that, in Jewish, Christian and Islamic thought is a reflection of God's Nature, self-realized in His Intellect. Whether or not you believe that, the bottom line is that "right" and "wrong" are discernible by reason alone, not faith. Faith can illuminate and deepen the understanding that reason brings, but cannot substitute for it, however fervent that faith may be.
The chief precept of the natural law is that good is to be done, evil avoided. Putting it another way, humanity's job on this earth — whatever religion or philosophy is followed — is to acquire and develop virtue. Virtue is the habit of doing good. The chief "temporal virtue," that is, the primary virtue above all others for which humanity has the natural capacity to acquire and develop, is justice. To have a rational money system, then, it must be just.
The obvious question now is, what must we do if we are to replace hell money in the economy with something more suited to use by the living instead of the dead or unborn?
#30#
Thursday, October 13, 2011
Halloween Horror Special VI: The Incredible Shrinking Economy
One of the better techno-horror classics of the 1950s was The Incredible Shrinking Man (1957). Strict attention was paid to special effects, which only fail to come up to par when a child actor portrays "Robert Carey" (Grant Williams), the shrinking man, briefly. (Tough call for the director; it was probably impossible to find a little person who looked enough like Williams to qualify for the role — this was no "Mini-me" schlock played for laughs. The subject is treated with far more sensitivity than you'd expect in a fifties' sci-fi flick.) The smallification is caused by a combination of exposure to an atomic cloud — a fifties favorite villain — and pesticide. The overall intelligence of the script and the acting earned the film a place on the National Film Registry in 2009 for being "culturally, historically or aesthetically" significant — probably "culturally."
The character's problem is that the doctors can't find an antidote, and even the treatment to halt the shrinking works only temporarily. This is just long enough to kick his psyche in the teeth and traumatize a woman who works in a circus sideshow with whom he has a platonic relationship and (ultimately) helps him accept the fact that he is still human despite his size. (Things are a little different in the novel; we're going by the film.)
You probably see where this is going.
While the magic of reported statistics and inflationary manipulation of the currency is causing the illusion of growth sufficient to classify the current situation as a "recovery" from a "recession," it's all done with "special effects" . . . only not as believable as those in The Incredible Shrinking Man. It doesn't strike the Powers-that-Be, for example, that while consumer spending is up, actual consumption is down.
What's the problem there? The demand for new capital — and thus new investment and new jobs — is derived from consumer demand. That's real consumption, not inflationary rises in prices that redistribute purchasing power.
Inflation gives the illusion that consumption is up. Even Keynes, however, admitted that, as a result of inflation, spending may go up, allowing producers to accumulate "forced savings," but actual per capita consumption goes down as a result of higher prices forcing consumers to cut back.
Increasing consumer credit can make up the difference for a while, as it usually has since the early 1960s when consumer credit card use became widespread. The problem is that the bill eventually falls due; it can't just be put off indefinitely. The rise in per capita non-mortgage consumer debt from approximately $8,000.00 in 2008 to $10,000.00 in 2011 tells us how the "recovery" is being funded.
The constant complaints about how "the corporations" and "Wall Street" are hoarding cash and not doing their civic and humanitarian duty by spending it and creating jobs are misplaced. Because the demand for new capital and thus new jobs derives from consumer demand — again, real consumption, not increases in consumption spending — "the corporations" would be fools to invest in new capital and create jobs producing more marketable goods and services when there is decreasing actual demand for what they are currently producing.
Instead, "the corporations" (actually, any sane business man, woman or child) hold back the money, figuring — correctly — that if consumption is declining, they'd only be throwing the money down a rat hole.
Of course, they could do the just thing and pay out the money to their shareholders as dividends, who (if acting rationally) would spend it on consumption. This would provide the increase in real consumption required to provide the incentive to invest in new capital and create jobs without redistribution or government subsidy. Instead, the corporations are shoveling money into the stock market, buying and selling long and short at a tremendous rate, fueling the wild swings we've almost become accustomed to . . . just as was the case in 1929. (The difference, of course, was that in 1929 the situation was even more volatile due to the low margin requirement, but the end result will be the same, whether the money is coming from pure credit or existing accumulations. It's all money, and it's all being used improperly.)
The problem there is that not enough people have an interest in having corporations pay dividends. Due to the slavery of past savings, most people do not own any appreciable amount of corporate equity, and thus have no reason to care whether or not owners get their just due, i.e., the fruits of ownership, also known as income and control.
Meanwhile, back at the ranch . . .
Right now the "global economy" is suffering from the illusion of recovery. Yes, consumer spending is up — but consumption is down. That's not a recovery, that's a contraction of an economy already on life support. Things are not getting better, they're getting worse in real terms.
But, the pundits say, corporations have amassed huge amounts of cash. As we noted, however, none of this cash is being put to its proper use — not job creation, but consumption that will increase consumer demand and thus the demand for capital . . . and thus create jobs. Using the cash to "create jobs" directly is simply a complicated form of redistribution. Such jobs cannot be sustained because they are not called into being by true demand for the creation of new wealth, only by diverting existing wealth from its proper use: consumption.
Don't divert existing cash into reinvestment to create unnecessary new investment — unnecessary, that is, from the perspective of lack of demand. Instead, spend the cash to create "new" effective demand, which increases the demand for new capital investment, and thus job creation naturally.
To ensure that as many jobs are created as the economy needs, make certain that all income from capital is spent on consumption, or on retiring existing debt — past consumption that hasn't been paid for. Finance all new capital out of future, not past savings. All income generated by the new capital can then be used first to repay the financing of the capital — a form of consumption, by the way — and then spent on more consumption.
The best way to do this, of course, is to ensure that as many people as possible own capital, and that will require a Capital Homestead Act at the earliest possible date, possibly 2012, the 150th anniversary of the original 1862 Homestead Act.
Otherwise, we can sit back and watch the incredible shrinking economy continue to get smaller and smaller until it finally disappears altogether.
#30#
The character's problem is that the doctors can't find an antidote, and even the treatment to halt the shrinking works only temporarily. This is just long enough to kick his psyche in the teeth and traumatize a woman who works in a circus sideshow with whom he has a platonic relationship and (ultimately) helps him accept the fact that he is still human despite his size. (Things are a little different in the novel; we're going by the film.)
You probably see where this is going.
While the magic of reported statistics and inflationary manipulation of the currency is causing the illusion of growth sufficient to classify the current situation as a "recovery" from a "recession," it's all done with "special effects" . . . only not as believable as those in The Incredible Shrinking Man. It doesn't strike the Powers-that-Be, for example, that while consumer spending is up, actual consumption is down.
What's the problem there? The demand for new capital — and thus new investment and new jobs — is derived from consumer demand. That's real consumption, not inflationary rises in prices that redistribute purchasing power.
Inflation gives the illusion that consumption is up. Even Keynes, however, admitted that, as a result of inflation, spending may go up, allowing producers to accumulate "forced savings," but actual per capita consumption goes down as a result of higher prices forcing consumers to cut back.
Increasing consumer credit can make up the difference for a while, as it usually has since the early 1960s when consumer credit card use became widespread. The problem is that the bill eventually falls due; it can't just be put off indefinitely. The rise in per capita non-mortgage consumer debt from approximately $8,000.00 in 2008 to $10,000.00 in 2011 tells us how the "recovery" is being funded.
The constant complaints about how "the corporations" and "Wall Street" are hoarding cash and not doing their civic and humanitarian duty by spending it and creating jobs are misplaced. Because the demand for new capital and thus new jobs derives from consumer demand — again, real consumption, not increases in consumption spending — "the corporations" would be fools to invest in new capital and create jobs producing more marketable goods and services when there is decreasing actual demand for what they are currently producing.
Instead, "the corporations" (actually, any sane business man, woman or child) hold back the money, figuring — correctly — that if consumption is declining, they'd only be throwing the money down a rat hole.
Of course, they could do the just thing and pay out the money to their shareholders as dividends, who (if acting rationally) would spend it on consumption. This would provide the increase in real consumption required to provide the incentive to invest in new capital and create jobs without redistribution or government subsidy. Instead, the corporations are shoveling money into the stock market, buying and selling long and short at a tremendous rate, fueling the wild swings we've almost become accustomed to . . . just as was the case in 1929. (The difference, of course, was that in 1929 the situation was even more volatile due to the low margin requirement, but the end result will be the same, whether the money is coming from pure credit or existing accumulations. It's all money, and it's all being used improperly.)
The problem there is that not enough people have an interest in having corporations pay dividends. Due to the slavery of past savings, most people do not own any appreciable amount of corporate equity, and thus have no reason to care whether or not owners get their just due, i.e., the fruits of ownership, also known as income and control.
Meanwhile, back at the ranch . . .
Right now the "global economy" is suffering from the illusion of recovery. Yes, consumer spending is up — but consumption is down. That's not a recovery, that's a contraction of an economy already on life support. Things are not getting better, they're getting worse in real terms.
But, the pundits say, corporations have amassed huge amounts of cash. As we noted, however, none of this cash is being put to its proper use — not job creation, but consumption that will increase consumer demand and thus the demand for capital . . . and thus create jobs. Using the cash to "create jobs" directly is simply a complicated form of redistribution. Such jobs cannot be sustained because they are not called into being by true demand for the creation of new wealth, only by diverting existing wealth from its proper use: consumption.
Don't divert existing cash into reinvestment to create unnecessary new investment — unnecessary, that is, from the perspective of lack of demand. Instead, spend the cash to create "new" effective demand, which increases the demand for new capital investment, and thus job creation naturally.
To ensure that as many jobs are created as the economy needs, make certain that all income from capital is spent on consumption, or on retiring existing debt — past consumption that hasn't been paid for. Finance all new capital out of future, not past savings. All income generated by the new capital can then be used first to repay the financing of the capital — a form of consumption, by the way — and then spent on more consumption.
The best way to do this, of course, is to ensure that as many people as possible own capital, and that will require a Capital Homestead Act at the earliest possible date, possibly 2012, the 150th anniversary of the original 1862 Homestead Act.
Otherwise, we can sit back and watch the incredible shrinking economy continue to get smaller and smaller until it finally disappears altogether.
#30#
Tuesday, October 11, 2011
Halloween Horror Special V: The Invisible Government
A standard plot for cheap ripoff horror films and cheap parodies of cheap ripoff horror films is the invisible man, who is either insane to begin with, or becomes insane as a direct result of the invisibility serum/machine/process/magical spell. People — usually pretty girls who can hold the backs of their hands to their mouths and scream piercingly while exhibiting impeccable dentition — die, more or less horribly (albeit in black and white, which is less bloody and more Hershey's syrupy), usually without knowing what the heck is killing them, or at least wondering how that butcher knife can float around in the air. While the audience knows what is going on, at least three-quarters of the movie is spent watching the people on the screen develop theories to explain the carnage, identify the wrong villain, run around doing exactly the wrong thing, and so on, until somebody finally figures out that, by Godfrey Daniels, it's an invisible man!
Fast-forward to our feature presentation. The economy is going bawoosh, everybody and his brother seems to be running around blaming everybody else and his brother, and looking to the government for salvation. Unfortunately, out here in the audience in CESJ-land, we already know that the "invisible man" who's been running around wreaking havoc is the very government that people are looking to for help.
Obviously, this also works with bloodsucking vampires, who — to the surprise of the characters — turn out to be the most obvious participant in the "drama."
That's why it's not really a surprise that the Nobel Prize for the obvious has again been awarded. Two Americans received the prize for economics "for their empirical research on cause and effect in the macroeconomy." As the news reports report, "The two laureates, both 68, have developed methods to examine cause and effect when it comes to questions such as how economic growth and inflation are influenced by a temporary increase in interest rates or a tax cut." Not how the government affects the economy or to what degree. That's a given. What these geniuses have discovered is how to detect the interference.
In other words, the two Harvard economists have worked out new ways to figure out how the government baffles people about the cause of the adverse effects when the State screws around with the free market, goes insane, and embarks on a killing spree . . . we mean, engages in another round of quantitative easing to bring the economy back to life. "It's a-live!" they exult. Not really. It's just flopping around on the table as it breathes its last gasp.
Obviously, this also works with Frankenstein's monsters manufactured out of spare parts, a rather neat metaphor for the patchwork monetary and fiscal policy in place throughout virtually the entire world.
Actually, this works with just about any type move monster you can imagine. The only question is when people are going to realize that the one they've been looking to for a solution is the one strewing bodies all over the landscape.
#30#
Fast-forward to our feature presentation. The economy is going bawoosh, everybody and his brother seems to be running around blaming everybody else and his brother, and looking to the government for salvation. Unfortunately, out here in the audience in CESJ-land, we already know that the "invisible man" who's been running around wreaking havoc is the very government that people are looking to for help.
Obviously, this also works with bloodsucking vampires, who — to the surprise of the characters — turn out to be the most obvious participant in the "drama."
That's why it's not really a surprise that the Nobel Prize for the obvious has again been awarded. Two Americans received the prize for economics "for their empirical research on cause and effect in the macroeconomy." As the news reports report, "The two laureates, both 68, have developed methods to examine cause and effect when it comes to questions such as how economic growth and inflation are influenced by a temporary increase in interest rates or a tax cut." Not how the government affects the economy or to what degree. That's a given. What these geniuses have discovered is how to detect the interference.
In other words, the two Harvard economists have worked out new ways to figure out how the government baffles people about the cause of the adverse effects when the State screws around with the free market, goes insane, and embarks on a killing spree . . . we mean, engages in another round of quantitative easing to bring the economy back to life. "It's a-live!" they exult. Not really. It's just flopping around on the table as it breathes its last gasp.
Obviously, this also works with Frankenstein's monsters manufactured out of spare parts, a rather neat metaphor for the patchwork monetary and fiscal policy in place throughout virtually the entire world.
Actually, this works with just about any type move monster you can imagine. The only question is when people are going to realize that the one they've been looking to for a solution is the one strewing bodies all over the landscape.
#30#
Thursday, October 6, 2011
Halloween Horror Special IV: The Economics that Ate New York
In the opening passages of Adam Smith's The Wealth of Nations (1776) — the book, like Robin Hood, that nobody has read, but everyone thinks he knows — Smith made it clear that the purpose of production is consumption. As he says in his quaint 18th century way, "The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations."
In other words, if you don't produce, you can't consume.
Now, we could get into what Smith meant by "labor," "originally," "supplies," and so on. These are important. They're also subjects for another day. The point we're trying to make in this posting is the impossibility of generating income — "producing" — in order to consume without actually producing anything.
Put that way, it sounds ludicrous. Stop and think for a moment, however. Even within the flawed parameters of the Currency School, if the government prints money under the illusion that it is simply dividing the existing pie into smaller and smaller pieces, but hoping that some of the pieces (if cut small enough) will be reinvested to create jobs to bake more pies, all that's being done is to consume what exists without replacing it.
When we look at the reality of the Banking School, we realize that we're not cutting up an existing pie into smaller and smaller pieces, we're handing out tickets to consume things that haven't even been produced, but are supposed to be by the time the ticket is presented for redemption. Instead of the Keynesian lie that printing money "only" redistributes existing wealth, what is really happening is that we're putting a lien on wealth that doesn't yet exist and, unless somebody produces it, will never exist.
Thus, demands by non-productive public sector workers (and by "non-productive" we don't mean they don't do their jobs, but that they don't produce marketable goods and services for consumption) for more pay simply increases the cost of government and the outstanding promises that somebody else has to keep. Demands by the unemployed for more benefits does the same. Demands by the employed for increases of pay and benefits without a corresponding increase in the product of their labor also increases costs.
Every time a government spends money and finances it with debt instead of an increase in taxation, it is spending future tax collections, not dividing up existing wealth into smaller bits. Except in a socialist State, the government does not own the wealth of the economy, and cannot take it except as the citizens grant it in the form of taxes.
Contrary to Keynesian thought, "money" is not a debt that the nation owes to itself and thus doesn't have to be repaid. It's a mortgage on the future, and, if not paid, will destroy the economy and the government that made all the promises it couldn't keep. When people catch on that those marketable goods and services they expect to purchase with the promises they've been given (instead of purchased with what they have produced) don't exist, and likely never will exist, then the chaos in Greece or the demonstrations on Wall Street will look like a Sunday school picnic.
Since the advent of Keynesian economics, the world has, in effect, been busily "eating the horses," that is, consuming what we need to finance new capital. We don't mean the past savings. No, our schtick on that remains the same: you don't need existing accumulations of savings to finance new capital formation.
The "horses" we've been eating — and at an ever-accelerating rate — is the money supply itself by misusing it. Where the money supply should be backed by private sector promises to deliver the present value of existing and future marketable goods and services (and still is, to some extent, possibly as much as 60% . . . but it should be 100%), it is increasingly backed by government promises to deliver tax monies that haven't been collected, and which it is getting more and more probable will never be collected, because the government promises are consumption only, not investment in new capital.
And you thought Godzilla did a number on Tokyo. Wait until you see what "Tyrannosaurus Debt" will do to New York and Washington.
#30#
In other words, if you don't produce, you can't consume.
Now, we could get into what Smith meant by "labor," "originally," "supplies," and so on. These are important. They're also subjects for another day. The point we're trying to make in this posting is the impossibility of generating income — "producing" — in order to consume without actually producing anything.
Put that way, it sounds ludicrous. Stop and think for a moment, however. Even within the flawed parameters of the Currency School, if the government prints money under the illusion that it is simply dividing the existing pie into smaller and smaller pieces, but hoping that some of the pieces (if cut small enough) will be reinvested to create jobs to bake more pies, all that's being done is to consume what exists without replacing it.
When we look at the reality of the Banking School, we realize that we're not cutting up an existing pie into smaller and smaller pieces, we're handing out tickets to consume things that haven't even been produced, but are supposed to be by the time the ticket is presented for redemption. Instead of the Keynesian lie that printing money "only" redistributes existing wealth, what is really happening is that we're putting a lien on wealth that doesn't yet exist and, unless somebody produces it, will never exist.
Thus, demands by non-productive public sector workers (and by "non-productive" we don't mean they don't do their jobs, but that they don't produce marketable goods and services for consumption) for more pay simply increases the cost of government and the outstanding promises that somebody else has to keep. Demands by the unemployed for more benefits does the same. Demands by the employed for increases of pay and benefits without a corresponding increase in the product of their labor also increases costs.
Every time a government spends money and finances it with debt instead of an increase in taxation, it is spending future tax collections, not dividing up existing wealth into smaller bits. Except in a socialist State, the government does not own the wealth of the economy, and cannot take it except as the citizens grant it in the form of taxes.
Contrary to Keynesian thought, "money" is not a debt that the nation owes to itself and thus doesn't have to be repaid. It's a mortgage on the future, and, if not paid, will destroy the economy and the government that made all the promises it couldn't keep. When people catch on that those marketable goods and services they expect to purchase with the promises they've been given (instead of purchased with what they have produced) don't exist, and likely never will exist, then the chaos in Greece or the demonstrations on Wall Street will look like a Sunday school picnic.
Since the advent of Keynesian economics, the world has, in effect, been busily "eating the horses," that is, consuming what we need to finance new capital. We don't mean the past savings. No, our schtick on that remains the same: you don't need existing accumulations of savings to finance new capital formation.
The "horses" we've been eating — and at an ever-accelerating rate — is the money supply itself by misusing it. Where the money supply should be backed by private sector promises to deliver the present value of existing and future marketable goods and services (and still is, to some extent, possibly as much as 60% . . . but it should be 100%), it is increasingly backed by government promises to deliver tax monies that haven't been collected, and which it is getting more and more probable will never be collected, because the government promises are consumption only, not investment in new capital.
And you thought Godzilla did a number on Tokyo. Wait until you see what "Tyrannosaurus Debt" will do to New York and Washington.
#30#
Wednesday, October 5, 2011
Halloween Horror Special III: The Jekyll from Creature Island
Today we have a real horror story to relate. A while back Norman Kurland spent a great deal of time with a film producer, carefully filling him in on the Just Third Way and Capital Homesteading, with special attention to the proposed monetary and tax reforms that constitute an essential part of the package.
The film is set to be released within a month. We've seen the trailer, and there was no mention of anything that Norm said. We found out that Norm's four hours or so of interviews ended up on the cutting room floor.
Okay — given that, with half a chance, Norm has a lot to say, we still have to admit that, all things considered, it's got substance. Frequently, it's a problem that he doesn't get a chance to say enough, and trying to cover everything within limited time constraints can result in a less than superficial presentation.
That was not the case in this case. Norm specifically asked, not once, but several times, if the producer had any questions. No, he had none.
Now for the horror story. It's bad enough having four hours or more of valuable insights tossed in the trash. It's suppression of the ideas by ignoring them. It's worse when what ends up presented to the public is filled with half-truths, distortions, and outright errors of fact. Not only is the truth ignored, serious damage is done and true reform efforts are derailed. There's now a promotional website up for the movie that is so filled with quarter-baked, rehashed conspiracy theory as to be unbelievable.
Fortunately, despite the massive amounts of money poured into the film, it shouldn't have any more effect on public policy than anything else that starts off by claiming space aliens hand-delivered the solution to us millennia ago. The problem is that, conditioned by this sort of thing as presenting an "alternative" to today's system, policymakers tend to think of any alternative as coming from outer space.
Anyway, here's our list of comments on just one point listed on the promotional website under the year 1913:
1. "The Federal Reserve Act is passed, creating the Central banking system we have today."
The Federal Reserve System bears only superficial resemblance to the institution established in 1913. Today it is used as the lender of first resort to the State for political purposes. It was set up as the lender of last resort for the private sector, to provide adequate liquidity for qualified industrial, commercial, and agricultural projects by rediscounting bills of exchange originally discounted by member commercial banks, supplemented with limited open market operations in private sector securities issued by individuals, businesses, and non-member commercial banks. The rediscounting of eligible paper would provide an asset-backed, "elastic" currency to avoid both inflation and deflation, and ensure that there was adequate liquidity in the system. The power to engage in open market operations in government securities was intended to retire the debt-backed National Bank Notes (1863-1913) and the Treasury Notes of 1890, and regulate the reserve requirements of member banks. The program to retire the National Bank Notes was terminated in 1938, while the 100% reserve requirement mandated under Capital Homesteading would eliminate the necessity for adjusting reserve requirements.
2. "This allows a private organization to create money out of nothing, loan it out at interest, make decisions without government approval and control the amount of money in circulation."
One, going by William Crosskey's analysis and statements by various framers of the Constitution, such as George Mason, the federal government does not have the power to emit bills of credit, that is, "create money." The understanding of the Founding Fathers was that it is the private sector's role to create money, of which the State can tax a portion to defray legitimate expenses of government. This is what Alexander Hamilton argued in his "Opinion as to the Constitutionality of the Bank of the United States" (1791), and in which Secretary of State Thomas Jefferson reluctantly agreed. To prevent the money power from becoming a pawn of political interests as is the case today, it was always intended that a central bank be a privately owned and independent institution, a fiction that the Federal Reserve maintains to this day, and was the case with the four previous central banks and central banking systems in the United States, i.e., the Bank of North America under the Articles of Confederation, the Bank of the United States under the Constitution, the Second Bank of the United States, and the National Bank system. All were privately owned and operated, filling a role that, given the control over lives and property that the money power conveys, should never be vested in the State.
Two, banks, including central banks, do not create money "out of nothing." A bank of deposit cannot create money at all. A bank of issue — and a central bank is a type of bank of issue — creates money by "accepting," that is, discounting or rediscounting private sector bills of exchange drawn on the present value of existing or future marketable goods and services. These are called "banker's acceptances." This value is real, it can be conveyed by contract, and the instrument(s) conveying the property right in the present value of existing or future marketable goods and services can and does serve as the medium of exchange. It is not "nothing."
Three, the proper function of a central bank is not to loan money, at interest or no interest. A central bank is designed to discount and rediscount bills of exchange, that is, transform one type of money into another type of money. This is done at the present value of the existing or future marketable goods or services that stand behind the money being exchanged. The discount rate is not an interest rate, that is, a sharing in profits. The discount rate is the difference between what the promise is worth today, and the amount at which the promise is redeemed on maturity. A risk premium is usually built into the discount rate, and does not constitute "interest" either. True, interest is received by a central bank on the securities purchased on the open market, but in the case of the questionably legal government bills of credit, the "profits" are turned back to the government after deducting operating costs. In effect, the government is getting "free money" to carry out politically motivated spending without being accountable to the taxpayer. The Federal Reserve does not make loans to private individuals or companies. That is not its function, and thus the statement "loan it out at interest" is incorrect. Interest is charged by banks of deposit on loans extended out of their capitalization and deposits. When, as is the case today, commercial banks assume far too many functions outside their proper role, they charge interest on consumer loans and other non-commercial loans. If the loans are made out of capitalization or deposits, the interest is legitimate. When money is created by discounting and the charges are in excess of the discount rate and a risk premium as if the loan were made out of existing savings, it is illegitimate. This, however, is a moot point in this discussion, because the Federal Reserve does not make consumer or any other loans. Nor does it currently fill its proper role by rediscounting qualified paper for member banks, but provides financing for government and government projects, such as the bailouts.
Four, "make decisions without government approval." Since the head of the Federal Reserve is removable by the president, all decisions are, ipso facto, made with "government approval." This was not supposed to be the case. Dr. Harold Moulton implied that the effective takeover of the Federal Reserve by the federal government in the 1930s to ensure financing of the New Deal was fascist.
Five, the Federal Reserve does not control the amount of money in circulation. That is the belief, but it assumes that "money" consists solely of coin, banknotes, demand deposits and some time deposits, i.e., "M2." In reality, even today, when the federal government exercises more control over the economy than at any time previous in history, private sector bills of exchange, i.e., privately issued money discounted and rediscounted between individuals and businesses, accounts for an estimated 60% of GDP. These are called "merchant's" or "trade acceptances."
3. "In the same year, Income Tax is established through ratification of the 16th Amendment, stating, "Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
This implies that the 16th Amendment made the income tax constitutional. Not so. The income tax has always been constitutional, as the Constitution clearly states, otherwise the power to levy taxes is meaningless, as was explained by the United States Court of Appeals for the Third Circuit in Penn Mutual Indemnity Co. v. Commissioner (32 T.C. 653 at 659 (1959)). The issue addressed in the 16th Amendment was not the constitutionality of the income tax per se. Again, the income tax has always been constitutional. The issue was whether an income tax is a direct or indirect tax on persons. Under the Constitution, prior to the 16th Amendment, no direct tax on persons could be levied without apportionment among the various states on the basis of population.
There was an income tax levied during the Civil War. At the time, there was discussion in Congress as to whether an income tax is a direct tax on persons, or a tax on property, and thus indirect on the property owner. As most people still derived income from capital ownership, it was decided, for the sake of expedience, that an income tax would be regarded as an indirect tax, and thus could be levied without apportionment, but the question was never settled, and the income tax was removed in the 1870s.
In 1894, following the Panic of 1893 and the start of the first "Great Depression," Congress again passed an income tax, largely in response to Populist and socialist pressure. The tax was challenged in 1895, and the Supreme Court ruled that an income tax is a direct tax on persons, and thus unconstitutional without apportionment among the various states on the basis of population. (Pollock v. Farmers' Loan and Trust Co., 157 U.S. 429, 158 U.S. 601 (1895).) This was reasonable, as by 1893 and the effective end of the "free" land available under the Homestead Act a determinant number of people subsisted on wages alone, not property income. As income in that case is thus generated by persons and not property, an income tax is obviously a direct tax on persons, not a direct tax on property (and thus indirect on persons), and clearly unconstitutional without apportionment among the various states on the basis of population.
As you could see if we gave you the link to the website (which we have no intention of doing, as you might actually look at it), this briefly corrects just the misinformation in only one of the listed points. The real problem appears to be a fundamental misunderstanding of money, credit, banking and finance, combined with an uncritical acceptance of historical "facts" that have been asserted for generations without verification or examination of their reasonableness.
"Plan Nine from Outer Space" is more believable.
#30#
The film is set to be released within a month. We've seen the trailer, and there was no mention of anything that Norm said. We found out that Norm's four hours or so of interviews ended up on the cutting room floor.
Okay — given that, with half a chance, Norm has a lot to say, we still have to admit that, all things considered, it's got substance. Frequently, it's a problem that he doesn't get a chance to say enough, and trying to cover everything within limited time constraints can result in a less than superficial presentation.
That was not the case in this case. Norm specifically asked, not once, but several times, if the producer had any questions. No, he had none.
Now for the horror story. It's bad enough having four hours or more of valuable insights tossed in the trash. It's suppression of the ideas by ignoring them. It's worse when what ends up presented to the public is filled with half-truths, distortions, and outright errors of fact. Not only is the truth ignored, serious damage is done and true reform efforts are derailed. There's now a promotional website up for the movie that is so filled with quarter-baked, rehashed conspiracy theory as to be unbelievable.
Fortunately, despite the massive amounts of money poured into the film, it shouldn't have any more effect on public policy than anything else that starts off by claiming space aliens hand-delivered the solution to us millennia ago. The problem is that, conditioned by this sort of thing as presenting an "alternative" to today's system, policymakers tend to think of any alternative as coming from outer space.
Anyway, here's our list of comments on just one point listed on the promotional website under the year 1913:
1. "The Federal Reserve Act is passed, creating the Central banking system we have today."
The Federal Reserve System bears only superficial resemblance to the institution established in 1913. Today it is used as the lender of first resort to the State for political purposes. It was set up as the lender of last resort for the private sector, to provide adequate liquidity for qualified industrial, commercial, and agricultural projects by rediscounting bills of exchange originally discounted by member commercial banks, supplemented with limited open market operations in private sector securities issued by individuals, businesses, and non-member commercial banks. The rediscounting of eligible paper would provide an asset-backed, "elastic" currency to avoid both inflation and deflation, and ensure that there was adequate liquidity in the system. The power to engage in open market operations in government securities was intended to retire the debt-backed National Bank Notes (1863-1913) and the Treasury Notes of 1890, and regulate the reserve requirements of member banks. The program to retire the National Bank Notes was terminated in 1938, while the 100% reserve requirement mandated under Capital Homesteading would eliminate the necessity for adjusting reserve requirements.
2. "This allows a private organization to create money out of nothing, loan it out at interest, make decisions without government approval and control the amount of money in circulation."
One, going by William Crosskey's analysis and statements by various framers of the Constitution, such as George Mason, the federal government does not have the power to emit bills of credit, that is, "create money." The understanding of the Founding Fathers was that it is the private sector's role to create money, of which the State can tax a portion to defray legitimate expenses of government. This is what Alexander Hamilton argued in his "Opinion as to the Constitutionality of the Bank of the United States" (1791), and in which Secretary of State Thomas Jefferson reluctantly agreed. To prevent the money power from becoming a pawn of political interests as is the case today, it was always intended that a central bank be a privately owned and independent institution, a fiction that the Federal Reserve maintains to this day, and was the case with the four previous central banks and central banking systems in the United States, i.e., the Bank of North America under the Articles of Confederation, the Bank of the United States under the Constitution, the Second Bank of the United States, and the National Bank system. All were privately owned and operated, filling a role that, given the control over lives and property that the money power conveys, should never be vested in the State.
Two, banks, including central banks, do not create money "out of nothing." A bank of deposit cannot create money at all. A bank of issue — and a central bank is a type of bank of issue — creates money by "accepting," that is, discounting or rediscounting private sector bills of exchange drawn on the present value of existing or future marketable goods and services. These are called "banker's acceptances." This value is real, it can be conveyed by contract, and the instrument(s) conveying the property right in the present value of existing or future marketable goods and services can and does serve as the medium of exchange. It is not "nothing."
Three, the proper function of a central bank is not to loan money, at interest or no interest. A central bank is designed to discount and rediscount bills of exchange, that is, transform one type of money into another type of money. This is done at the present value of the existing or future marketable goods or services that stand behind the money being exchanged. The discount rate is not an interest rate, that is, a sharing in profits. The discount rate is the difference between what the promise is worth today, and the amount at which the promise is redeemed on maturity. A risk premium is usually built into the discount rate, and does not constitute "interest" either. True, interest is received by a central bank on the securities purchased on the open market, but in the case of the questionably legal government bills of credit, the "profits" are turned back to the government after deducting operating costs. In effect, the government is getting "free money" to carry out politically motivated spending without being accountable to the taxpayer. The Federal Reserve does not make loans to private individuals or companies. That is not its function, and thus the statement "loan it out at interest" is incorrect. Interest is charged by banks of deposit on loans extended out of their capitalization and deposits. When, as is the case today, commercial banks assume far too many functions outside their proper role, they charge interest on consumer loans and other non-commercial loans. If the loans are made out of capitalization or deposits, the interest is legitimate. When money is created by discounting and the charges are in excess of the discount rate and a risk premium as if the loan were made out of existing savings, it is illegitimate. This, however, is a moot point in this discussion, because the Federal Reserve does not make consumer or any other loans. Nor does it currently fill its proper role by rediscounting qualified paper for member banks, but provides financing for government and government projects, such as the bailouts.
Four, "make decisions without government approval." Since the head of the Federal Reserve is removable by the president, all decisions are, ipso facto, made with "government approval." This was not supposed to be the case. Dr. Harold Moulton implied that the effective takeover of the Federal Reserve by the federal government in the 1930s to ensure financing of the New Deal was fascist.
Five, the Federal Reserve does not control the amount of money in circulation. That is the belief, but it assumes that "money" consists solely of coin, banknotes, demand deposits and some time deposits, i.e., "M2." In reality, even today, when the federal government exercises more control over the economy than at any time previous in history, private sector bills of exchange, i.e., privately issued money discounted and rediscounted between individuals and businesses, accounts for an estimated 60% of GDP. These are called "merchant's" or "trade acceptances."
3. "In the same year, Income Tax is established through ratification of the 16th Amendment, stating, "Congress shall have the power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
This implies that the 16th Amendment made the income tax constitutional. Not so. The income tax has always been constitutional, as the Constitution clearly states, otherwise the power to levy taxes is meaningless, as was explained by the United States Court of Appeals for the Third Circuit in Penn Mutual Indemnity Co. v. Commissioner (32 T.C. 653 at 659 (1959)). The issue addressed in the 16th Amendment was not the constitutionality of the income tax per se. Again, the income tax has always been constitutional. The issue was whether an income tax is a direct or indirect tax on persons. Under the Constitution, prior to the 16th Amendment, no direct tax on persons could be levied without apportionment among the various states on the basis of population.
There was an income tax levied during the Civil War. At the time, there was discussion in Congress as to whether an income tax is a direct tax on persons, or a tax on property, and thus indirect on the property owner. As most people still derived income from capital ownership, it was decided, for the sake of expedience, that an income tax would be regarded as an indirect tax, and thus could be levied without apportionment, but the question was never settled, and the income tax was removed in the 1870s.
In 1894, following the Panic of 1893 and the start of the first "Great Depression," Congress again passed an income tax, largely in response to Populist and socialist pressure. The tax was challenged in 1895, and the Supreme Court ruled that an income tax is a direct tax on persons, and thus unconstitutional without apportionment among the various states on the basis of population. (Pollock v. Farmers' Loan and Trust Co., 157 U.S. 429, 158 U.S. 601 (1895).) This was reasonable, as by 1893 and the effective end of the "free" land available under the Homestead Act a determinant number of people subsisted on wages alone, not property income. As income in that case is thus generated by persons and not property, an income tax is obviously a direct tax on persons, not a direct tax on property (and thus indirect on persons), and clearly unconstitutional without apportionment among the various states on the basis of population.
As you could see if we gave you the link to the website (which we have no intention of doing, as you might actually look at it), this briefly corrects just the misinformation in only one of the listed points. The real problem appears to be a fundamental misunderstanding of money, credit, banking and finance, combined with an uncritical acceptance of historical "facts" that have been asserted for generations without verification or examination of their reasonableness.
"Plan Nine from Outer Space" is more believable.
#30#
Tuesday, October 4, 2011
Halloween Horror Special II: Zombie Bot Slaves from Mars
For the last couple of weeks, the world has been entertained (if that is the word) by shuffling flash crowds of unemployed protestors parading around Wall Street in appropriate (or inappropriate, according to your view) costume, chanting "Uh . . . uh . . . uh." No, it's not "Talk Like a Zombie Day," or even "Like an Inarticulate Pirate Day." Rather, the "Uh . . . uh . . . uh" is (movie) Zombie lingo for "Jobs . . . jobs . . . jobs."
Regular readers of this blog probably already know where this is headed. For the rest of you, we'll take a walk back in history, all the way to the Halcyon Days of Yore (Your what, we don't know) of 1964 and the hallowed pages of Life magazine.
First, however, a little background. This past Sunday a Slate magazine columnist on science and technology, Farhad Manjoo, published an article in the Washington Post, "Meet Mr. Bot. He's the Competition." (The Washington Post, 10/02/11, G5.) To be gistful, the point of this first article in a series on technology, the future, and what to do about it, was that as technology advances, human labor diminishes and, finally, disappears altogether from the production process.
Obviously we couldn't let that go by, so we zipped off a letter to Mr. Manjoo:
Farhad Manjoo
Slate Magazine
Dear Mr. Manjoo:
Kudos on your article in this past Sunday's Washington Post. You raise an issue that people should be thinking about, but, with the focus on jobs, jobs, jobs as the sole source of income and of participating in the production of marketable goods and services, have avoided dealing with.
You might be interested in knowing that Louis Kelso and Mortimer Adler were addressing the problems you raise more than fifty years ago in their two collaborations, The Capitalist Manifesto (1958) and The New Capitalists (1961). Their conclusion — and solution — was that, as direct human labor becomes relatively less important as a factor of production and is finally removed altogether, people must become owners of the "Mr. Bots" that are replacing them. Kelso and Adler's second book presents a plan whereby people without savings or traditional collateral could purchase capital on credit, and repay the acquisition cost out of future profits generated by the capital itself. As the subtitle of The New Capitalists puts it, "A Proposal to Free Economic Growth from the Slavery of [Past] Savings."
Kelso and Adler's ideas were considered significant enough that both books became best sellers — and Life magazine ran an editorial highlighting Kelso and Adler in its August 14, 1964 issue, "If the Machine Wants Our Jobs, Let's Buy It." As the editorial concludes,
"A hundred years ago, when land was the chief form of capital, the Homestead Acts distributed it to all comers and cured the unemployment problem of that day. Today, as Arthur Larson and others have suggested, an analogous solution would be to place ownership of U.S. industry in the hands of workers and let them live off their dividends as their job incomes fall. Profit-sharing programs are already growing at the rate of 5,000 a year; by tax and other policies, the government could turn this into a massive redistribution of equity property. One proposal, by Mortimer Adler and Louis Kelso in The New Capitalists, would guarantee bank loans for new stock acquisition through a Capital Diffusion Insurance Corporation, modeled on FHA.
"An answer to cybernation that relies on private property and the profit system would be more acceptable to Americans than turning the whole income problem over to the government."
We call the refinements that we at the Arlington, Virginia-based Center for Economic and Social Justice (CESJ) have put on Kelso and Adler's ideas "The Just Third Way," and its application "Capital Homesteading." If you'd like to discuss these ideas, Dr. Norman Kurland, president of CESJ, would be happy to talk with you. He can be reached at [NUMBERS DELETED TO AVOID OFFICE SUPPLY ZOMBIE SALESMEN].
Thank you. We look forward to hearing from you.
Yours,
Blah, blah, blah.
Oh, yeah. The Zombie Bot Slaves from Mars. The protestors on Wall Street are demanding something that, as far as Farhad Manjoo and Kelso and Adler are concerned, just plain isn't going to be there. (That, and they're targeting the wrong institutions.) They should be demanding ownership . . . ownership . . . ownership — and access to capital credit and capital credit insurance and reinsurance to be able to pay for the capital and secure the loan in the event of a default, and all without redistribution, increased taxation, more government debt, or redefining any part of the natural law to fit the distortions of Keynesian economics.
Simple, isn't it? And all from adopting a Capital Homestead Act by 2012.
Uh . . . uh . . . uh.
#30#
Regular readers of this blog probably already know where this is headed. For the rest of you, we'll take a walk back in history, all the way to the Halcyon Days of Yore (Your what, we don't know) of 1964 and the hallowed pages of Life magazine.
First, however, a little background. This past Sunday a Slate magazine columnist on science and technology, Farhad Manjoo, published an article in the Washington Post, "Meet Mr. Bot. He's the Competition." (The Washington Post, 10/02/11, G5.) To be gistful, the point of this first article in a series on technology, the future, and what to do about it, was that as technology advances, human labor diminishes and, finally, disappears altogether from the production process.
Obviously we couldn't let that go by, so we zipped off a letter to Mr. Manjoo:
Farhad Manjoo
Slate Magazine
Dear Mr. Manjoo:
Kudos on your article in this past Sunday's Washington Post. You raise an issue that people should be thinking about, but, with the focus on jobs, jobs, jobs as the sole source of income and of participating in the production of marketable goods and services, have avoided dealing with.
You might be interested in knowing that Louis Kelso and Mortimer Adler were addressing the problems you raise more than fifty years ago in their two collaborations, The Capitalist Manifesto (1958) and The New Capitalists (1961). Their conclusion — and solution — was that, as direct human labor becomes relatively less important as a factor of production and is finally removed altogether, people must become owners of the "Mr. Bots" that are replacing them. Kelso and Adler's second book presents a plan whereby people without savings or traditional collateral could purchase capital on credit, and repay the acquisition cost out of future profits generated by the capital itself. As the subtitle of The New Capitalists puts it, "A Proposal to Free Economic Growth from the Slavery of [Past] Savings."
Kelso and Adler's ideas were considered significant enough that both books became best sellers — and Life magazine ran an editorial highlighting Kelso and Adler in its August 14, 1964 issue, "If the Machine Wants Our Jobs, Let's Buy It." As the editorial concludes,
"A hundred years ago, when land was the chief form of capital, the Homestead Acts distributed it to all comers and cured the unemployment problem of that day. Today, as Arthur Larson and others have suggested, an analogous solution would be to place ownership of U.S. industry in the hands of workers and let them live off their dividends as their job incomes fall. Profit-sharing programs are already growing at the rate of 5,000 a year; by tax and other policies, the government could turn this into a massive redistribution of equity property. One proposal, by Mortimer Adler and Louis Kelso in The New Capitalists, would guarantee bank loans for new stock acquisition through a Capital Diffusion Insurance Corporation, modeled on FHA.
"An answer to cybernation that relies on private property and the profit system would be more acceptable to Americans than turning the whole income problem over to the government."
We call the refinements that we at the Arlington, Virginia-based Center for Economic and Social Justice (CESJ) have put on Kelso and Adler's ideas "The Just Third Way," and its application "Capital Homesteading." If you'd like to discuss these ideas, Dr. Norman Kurland, president of CESJ, would be happy to talk with you. He can be reached at [NUMBERS DELETED TO AVOID OFFICE SUPPLY ZOMBIE SALESMEN].
Thank you. We look forward to hearing from you.
Yours,
Blah, blah, blah.
Oh, yeah. The Zombie Bot Slaves from Mars. The protestors on Wall Street are demanding something that, as far as Farhad Manjoo and Kelso and Adler are concerned, just plain isn't going to be there. (That, and they're targeting the wrong institutions.) They should be demanding ownership . . . ownership . . . ownership — and access to capital credit and capital credit insurance and reinsurance to be able to pay for the capital and secure the loan in the event of a default, and all without redistribution, increased taxation, more government debt, or redefining any part of the natural law to fit the distortions of Keynesian economics.
Simple, isn't it? And all from adopting a Capital Homestead Act by 2012.
Uh . . . uh . . . uh.
#30#
Monday, October 3, 2011
Halloween Horror Special, I: The Root of All Evil (Bwa-Ha-Ha)
Opening our e-mail early this morning we got one of those extra-special treats that make our lives easier: an egregious statement that we can quickly refute, and use as a blog posting. It's not exactly the best start for this year's "Halloween Horror Specials," but it will do. (The "Bwa-ha-ha" is the evil laugh we're supposed to give, especially since we can't duplicate that sinister titter of the Crypt Keeper.)
What is the "treat"? We received "Letter #32: Money the Root of All Evil" from Inside the Vatican editor Dr. Robert Moynihan. N.B.: Before you go ballistic, Dr. Moynihan does correct the misimpression in the subject line by noting that what St. Paul really said in his letter to Timothy is that love of money is the root of all evil. That does not, however, excuse Dr. Moynihan's other, far more serious (because less obvious) error:
On 10/2/11 10:38 PM, Dr. Robert Moynihan wrote:
"We know that there are floods of 'money' in our world. (I put the word in quotes, because most of our money is not money at all, but debt, that is, it doesn't exist except as a promise from somebody else to be made good at some future time.)"
Now, you know we can't let that one go by — especially since we had a number of meetings with Dr. Moynihan before he stopped communicating with us, and we thought he understood what we were saying. It's made even worse by the fact that we might expand on St. Paul's admonition by saying it's the love of bad ideas about money — and the fanaticism with which those bad ideas are held — that is the root, if not of all evil, of quite a bit of it . . . and all of it well-intentioned, of course, as, no doubt, Dr. Moynihan's little essay was. So here's our response:
October 3, 2011
Dr. Robert Moynihan, editor
Inside the Vatican magazine
Dear Dr. Moynihan:
The above statement from your "Letter #32" reflects an egregious misunderstanding of money. As defined in the accounting and legal professions, "money" is anything that can be used to settle a debt; as lawyer-economist Henry Dunning Macleod explained, money and credit are simply two different forms of the same thing. All money is consequently a "debt" in that it consists of a "promise from somebody else to be made good at some future time." The question is whether the issuer or creator of the money has the capacity to make good on the promise, not whether it is a promise.
As Jean-Baptiste Say explained to the Reverend Thomas Malthus in refutation of that gentleman's economic theories (in which refutation Louis Kelso and Mortimer Adler concurred), we do not buy what others produce with this thing called "money." Money is simply a symbol, the medium by means of which we exchange what we produce by means of our labor and capital, for what others produce with their labor and capital. Consequently, if there is economic stagnation or a downturn, it is not because there is insufficient money, or because "the government" isn't printing more worthless currency or otherwise manipulating the financial and economic systems. Rather, it is because there is insufficient production in which all people can participate through their direct ownership of the means of production, whether labor or capital, or (as the popes have stressed over and over), both labor and capital.
Money is thus an application of two natural rights, liberty (free association/contract) and private property, that is, the natural right to be an owner, and the correlative socially determined bundle of rights that define how an owner may use what he or she owns. Understood properly, money is fully consistent with the natural law and thus necessarily with Catholic social teaching. To insist, contrary to reality, that "money" consists solely of coin, government-issued or sanctioned banknotes, demand deposits and limited time deposits ("M2") backed exclusively by "bills of credit" (government debt backed by future tax collections — "anticipation notes") is the same as claiming that the State is in charge of every aspect of civil life, and that no one is permitted to exist economically except as "a mere creature of the State." (Pierce v. The Society of Sisters, 1925.) As one delusional ostensibly Catholic academic expressed this fallacy, "The State is the sole intercessor available to the poor."
That the State — an essential tool, but dangerous when permitted to go beyond its proper sphere — is in control of everything was the claim of totalitarian philosopher Thomas Hobbes in Leviathan, was embodied in 19th century economic policy by Walter Bagehot (Lombard Street, 1873), and congealed into an absolute dogma by John Maynard Keynes, who declared in 1930 that the authoritarian State has the power to change the natural law (that is, God's Nature) by "re-editing the dictionary" and unilaterally altering the terms of any contract. (A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace, Jovanovich, 1930, p. 4.) Inevitably this leads to the conclusion, common to both capitalism and socialism, that it is impossible to finance new capital formation without first cutting consumption and accumulating money savings — demonstrably false, as Dr. Harold Moulton proved in 1935 in The Formation of Capital.
Very much the contrary. Money, as anything that can be used to settle a debt, is any instrument, agreement or other vehicle — any contract, in fact, even a handshake — by means of which a property right in the present value of existing and future marketable goods and services is conveyed, to be redeemed on demand or on the occurrence of some future event. In today's economy, this is still predominantly in the form of "bills of exchange," private sector contracts drawn by individuals and businesses to carry out transactions. In 2008, these bills of exchange accounted for approximately 60% of the money supply. In 1916, Dr. Harold Moulton estimated that bills of exchange accounted for 75-80% of the money supply. In the 1830s, Congressman George Tucker estimated that 95-99% of the money supply consisted of bills of exchange. The vast majority of documents that survive from ancient times consist of bills of exchange — "money" — created by private individuals and businesses making and keeping promises.
The "money problem" today consists not of too much money, but rather too much money backed by government promises that rely on collecting taxes out of production that doesn't exist and may never exist, instead of private sector bills of exchange representing the present value of existing and future marketable goods and services. The world is flooded with the former kind of promise that relies for its redemption on politicians being able to tax more than exists or, as in the case of Greece, can exist in any reasonable world, while the latter is restricted by lack of democratic access to capital ownership and the ability of people to participate in the production of marketable goods and services. Capital Homesteading is designed to correct these problems through application of the principles of the Just Third Way, and thus without redistribution, raising taxes, or increasing government debt, as you should be fully aware.
Inasmuch as we explained these matters at length in our meetings with you, and you asked no questions indicating that you did not understand, you have no excuse for making such an error. Please correct it.
Yours,
Blah, blah, blah.
#30#
What is the "treat"? We received "Letter #32: Money the Root of All Evil" from Inside the Vatican editor Dr. Robert Moynihan. N.B.: Before you go ballistic, Dr. Moynihan does correct the misimpression in the subject line by noting that what St. Paul really said in his letter to Timothy is that love of money is the root of all evil. That does not, however, excuse Dr. Moynihan's other, far more serious (because less obvious) error:
On 10/2/11 10:38 PM, Dr. Robert Moynihan wrote:
"We know that there are floods of 'money' in our world. (I put the word in quotes, because most of our money is not money at all, but debt, that is, it doesn't exist except as a promise from somebody else to be made good at some future time.)"
Now, you know we can't let that one go by — especially since we had a number of meetings with Dr. Moynihan before he stopped communicating with us, and we thought he understood what we were saying. It's made even worse by the fact that we might expand on St. Paul's admonition by saying it's the love of bad ideas about money — and the fanaticism with which those bad ideas are held — that is the root, if not of all evil, of quite a bit of it . . . and all of it well-intentioned, of course, as, no doubt, Dr. Moynihan's little essay was. So here's our response:
October 3, 2011
Dr. Robert Moynihan, editor
Inside the Vatican magazine
Dear Dr. Moynihan:
The above statement from your "Letter #32" reflects an egregious misunderstanding of money. As defined in the accounting and legal professions, "money" is anything that can be used to settle a debt; as lawyer-economist Henry Dunning Macleod explained, money and credit are simply two different forms of the same thing. All money is consequently a "debt" in that it consists of a "promise from somebody else to be made good at some future time." The question is whether the issuer or creator of the money has the capacity to make good on the promise, not whether it is a promise.
As Jean-Baptiste Say explained to the Reverend Thomas Malthus in refutation of that gentleman's economic theories (in which refutation Louis Kelso and Mortimer Adler concurred), we do not buy what others produce with this thing called "money." Money is simply a symbol, the medium by means of which we exchange what we produce by means of our labor and capital, for what others produce with their labor and capital. Consequently, if there is economic stagnation or a downturn, it is not because there is insufficient money, or because "the government" isn't printing more worthless currency or otherwise manipulating the financial and economic systems. Rather, it is because there is insufficient production in which all people can participate through their direct ownership of the means of production, whether labor or capital, or (as the popes have stressed over and over), both labor and capital.
Money is thus an application of two natural rights, liberty (free association/contract) and private property, that is, the natural right to be an owner, and the correlative socially determined bundle of rights that define how an owner may use what he or she owns. Understood properly, money is fully consistent with the natural law and thus necessarily with Catholic social teaching. To insist, contrary to reality, that "money" consists solely of coin, government-issued or sanctioned banknotes, demand deposits and limited time deposits ("M2") backed exclusively by "bills of credit" (government debt backed by future tax collections — "anticipation notes") is the same as claiming that the State is in charge of every aspect of civil life, and that no one is permitted to exist economically except as "a mere creature of the State." (Pierce v. The Society of Sisters, 1925.) As one delusional ostensibly Catholic academic expressed this fallacy, "The State is the sole intercessor available to the poor."
That the State — an essential tool, but dangerous when permitted to go beyond its proper sphere — is in control of everything was the claim of totalitarian philosopher Thomas Hobbes in Leviathan, was embodied in 19th century economic policy by Walter Bagehot (Lombard Street, 1873), and congealed into an absolute dogma by John Maynard Keynes, who declared in 1930 that the authoritarian State has the power to change the natural law (that is, God's Nature) by "re-editing the dictionary" and unilaterally altering the terms of any contract. (A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace, Jovanovich, 1930, p. 4.) Inevitably this leads to the conclusion, common to both capitalism and socialism, that it is impossible to finance new capital formation without first cutting consumption and accumulating money savings — demonstrably false, as Dr. Harold Moulton proved in 1935 in The Formation of Capital.
Very much the contrary. Money, as anything that can be used to settle a debt, is any instrument, agreement or other vehicle — any contract, in fact, even a handshake — by means of which a property right in the present value of existing and future marketable goods and services is conveyed, to be redeemed on demand or on the occurrence of some future event. In today's economy, this is still predominantly in the form of "bills of exchange," private sector contracts drawn by individuals and businesses to carry out transactions. In 2008, these bills of exchange accounted for approximately 60% of the money supply. In 1916, Dr. Harold Moulton estimated that bills of exchange accounted for 75-80% of the money supply. In the 1830s, Congressman George Tucker estimated that 95-99% of the money supply consisted of bills of exchange. The vast majority of documents that survive from ancient times consist of bills of exchange — "money" — created by private individuals and businesses making and keeping promises.
The "money problem" today consists not of too much money, but rather too much money backed by government promises that rely on collecting taxes out of production that doesn't exist and may never exist, instead of private sector bills of exchange representing the present value of existing and future marketable goods and services. The world is flooded with the former kind of promise that relies for its redemption on politicians being able to tax more than exists or, as in the case of Greece, can exist in any reasonable world, while the latter is restricted by lack of democratic access to capital ownership and the ability of people to participate in the production of marketable goods and services. Capital Homesteading is designed to correct these problems through application of the principles of the Just Third Way, and thus without redistribution, raising taxes, or increasing government debt, as you should be fully aware.
Inasmuch as we explained these matters at length in our meetings with you, and you asked no questions indicating that you did not understand, you have no excuse for making such an error. Please correct it.
Yours,
Blah, blah, blah.
#30#
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