Impeach Obama?

One of the more shrill and vociferous demands that floated around during the presidency of Bush the Younger was that Bush should be impeached for [fill in the blank].  Now, as some people become a trifle disenchanted with President Obama, demands are shifting from he prove that he wasn’t born outside the U.S. (it is logically impossible to prove a negative in any event), to that he be impeached for [fill in the blank].

The Crimes of Rick Santorum

In his column in today's Washington Post, Dana Milbank goes to some trouble to convince his readers that Rick Santorum has been calling President Obama a Nazi. If Milbank's claim is correct, then Santorum is guilty of behavior that can only be described as despicable. The world may have known worse tyrants — Joseph Stalin comes to mind as a possibility — but none causes the visceral reaction of associating someone with Adolf Hitler, head of the National Socialist ("Nazi") Party. Calling President Obama a Nazi is, given his position as Head of State, tantamount to calling him another Hitler.

Despite Milbank's best efforts, the evidence is, at best, thin. He bases it on Santorum's oft-used comparisons between various Nazi programs, and those of today's federal government. Milbank does not cite one single instance where Santorum has called anyone except an actual member of the Nazi Party a Nazi, but assumes that drawing comparisons as a rhetorical device is the same as spewing out hate speech.

No, Milbank presents no evidence to prove that Santorum has ever called President Obama a Nazi or compared him to Hitler. There is plenty of innuendo, however. Take, for example, Milbank's statement, "Santorum is such a stranger to democratic give-and-take that he thinks it's okay to label everybody else as Nazis."

Notice the cleverness of Milbank's statement. He does not state as a fact that Santorum has ever at any time called anyone a Nazi. Even given the rather tepid protection public figures have against libel that might get Milbank into trouble.

No, what Milbank says is that — in his opinion (unless Milbank claims the power to read minds) — Santorum thinks it's okay to call everybody else Nazis. In other words, based on his less-than-generous and rather slanted interpretation of various statements and actions by Santorum, Milbank is actually saying what he thinks Santorum thinks.

Thus, without actually saying so, Milbank leaves the reader with the impression that Santorum habitually calls anyone with whom he disagrees a Nazi, when, in strict truth, Milbank has not presented any evidence to prove that Santorum has ever done any such thing. Nor would a reasonable person without an ax to grind infer any such thing from the quotes Milbank gives or the incidents he cites.

Googling "Santorum is calling Obama a Nazi" gave approximately 21.8 million matches. A quick check revealed that possibly a third of them were claims that Santorum was calling President Obama a Nazi or Hitler, but citing no specific instance. About two-thirds seemed to be denials by Santorum that he has ever done any such thing. Nowhere was there an actual quote by Santorum given.

All Milbank did was give the standard unanswerable — and completely dishonest — argument, "I know what you're thinking." If you deny that is what you are thinking, you're a liar. If you don't deny it, you're guilty. As anyone who has ever tried to respond to a furious boy- or girlfriend who pulls out that argument, there's no way you're going to win. The only thing anyone can do is retreat and get out of the line of fire until things cool down . . . such as after the election, which would probably suit Milbank just fine.

What is baffling about the allegation that Santorum calls President Obama and, apparently, everyone else on earth Nazis is (aside from the lack of evidence), however, the utter disingenuousness of the accusation. For eight years people called George Bush a Hitler, even coining a neologism, "Bushitler," that not only explicitly called Bush a reincarnation of the man many people regard as the greatest monster in history, but also hinted at large masses of bovine residue. Googling "Bushitler" gave 13,500 matches, while "Bush is Hitler" gave 28.5 million. Putting quotes around the words so that the exact phrase pops up gave 19,700 matches. "Bush is a Nazi" gave 12,600 matches.

The computer word count for this blog is 666. You know what that means.

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If Obama Knew More History . . .

In The Student Prince (at least the film version), Prince Karl Franz and his tutor are shaken out of bed in the middle of the night without a word of explanation and escorted to the private chambers of the King, the Prince's grandfather. As they make their way through the palace in their dressing gowns, Karl Franz remarks to his tutor, "Well, they can't do anything to me — I'm the Heir Apparent." His tutor gives him a Look and says, "If you knew more history, you'd be more worried."

We might make the same remark to President Obama — if we were convinced he was listening. The current push by flocks of lawyers to try and make the case that the Fourteenth Amendment empowers the Executive to raise the debt ceiling, even that the debt ceiling is unconstitutional, should be making the president sweat bullets . . . if he knew more history. The second most dangerous thing an executive can do is figure out a way to finance government operations without the consent of the legislature. The most dangerous? Rub their faces in it.

Take, for example, the case of Charles I Stuart. Having figured out ways to raise money for his pet projects without the consent of parliament, he thought he had the world as his oyster. After all, who would dare do anything to a divine right king, the elect of God, Defender of the Faith, the Lord's Anointed, King of England, Scotland, Ireland and France? (Yeah, France — the rulers of England didn't surrender their claim to the throne of France until the 19th century — they fought the 114-year long Hundred Years War over something.)

Parliament disagreed. Maybe the king ruled by divine right . . . but parliament controlled the tax and fiscal system. The king — as king — could not levy taxes or borrow money without the consent of parliament. Charles's theory of divine right, however, made no distinction between Charles the man, and Charles the king. He found he could borrow money as a private person without the consent of parliament, and use the funds to run the government as a public person in spite of parliament.

Unfortunately for Charles, parliament ultimately decided that, if Charles was going to merge the character of Charles the man with that of Charles the king, so could they. Ordinarily, the maxim of the law is that the king can do no wrong. This is usually interpreted as meaning that an office holder cannot be prosecuted for acts performed in carrying out the duties of his office, however badly. Nor can he be prosecuted as an office holder for acts committed as a private person. He can, however, be removed from office for poor performance, but not otherwise harmed, or removed from office for "high crimes and misdemeanors" and then prosecuted as a private person.

Thus, the demands, for example, to impeach past president Bush for prosecuting a presumably illegal war because he allegedly lied are empty rhetoric. It may have been the worst thing he could do, it may have been morally wrong, it may have been a great many things — but it was not illegal. Lying is, in and of itself, neither a high crime nor misdemeanor. Nor can an office holder be prosecuted for being mistaken, or taking bad advice. He can't even be prosecuted because you hate his guts or think he's the reincarnation of Adolph Hitler.

Parliament arrested Charles and put him on trial. His defense (which he never actually made, refusing to defend himself on the grounds that parliament had no right to try him) was that he was king and could do any damned thing he pleased, as long as he obeyed God's law . . . as he understood it as God's Anointed and personally chosen vicegerent of God on earth. Parliament's case was a bit less esoteric. The king had figured out a way to circumvent the power of parliament over the purse strings, by whose authority as representatives of the people Charles ruled (in theory). This led to armed conflict — war with parliament (and thus the people . . . in theory) — and the defeat of the king.

The formal charge was treason, that Charles had used his [money] power to pursue personal ends rather than the good of the nation: "for accomplishment of such his designs, and for the protecting of himself and his adherents in his and their wicked practices, to the same ends hath traitorously and maliciously levied war against the present Parliament, and the people therein represented . . . [that the] wicked designs, wars, and evil practices of him, the said Charles Stuart, have been, and are carried on for the advancement and upholding of a personal interest of will, power, and pretended prerogative to himself and his family, against the public interest, common right, liberty, justice, and peace of the people of this nation." Charles was therefore a traitor, and they cut off his head.

President Obama hardly faces the loss of his head — but he is coming up for reelection, we understand. By thumbing his nose at Congress by making the case that the Congress has no effective power over the purse strings that he cannot circumvent, he would risk alienating the whole of Congress, especially his supporters. Why, after all, does a politician support another politician? Because he thinks he needs the other to gain his own objectives. Also, everyone likes to feel needed, and nowhere is this more true than in politics. The best way to gain political support is for an influential person to convince a potential supporter that he counts, or, better, is irreplaceable.

If President Obama goes along with the argument that Congress has no effective power to control how much money the government spends, he would, in effect, be telling the members that he doesn't need them. He would be invoking something akin to Charles I's "personal rule," during which the king governed without calling a parliament. Congress would be effectively redundant in name as well as in fact. All power would be split between the Supreme Court and the President. Members of Congress could go home and get honest jobs . . . if there were any.

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More of the Same

Less than two full days after President Obama's State of the Union address on Tuesday, virtually all discussion and talk has faded away. Trying to cut the president every possible break — he is, after all, got one heck of a hard job to do, and not the best of times in which to do it — he really didn't say all that much worth remembering. Nor is this because he lacks the ability to make meaningful and memorable speeches.

Getting to the root of the problem, the reason that this State of the Union address isn't worth remembering is that President Obama came across with a lot of good-sounding language that, ultimately, didn't mean much. Yes, we're the greatest country on earth . . . but that starts to sound a little hollow when in almost the same breath the president of the United States starts talking about how other countries have surpassed us and continue to surpass us in many ways.

Then there's the repeated claim that we're out of the Great Depression III. Yes, we know it remains officially a recession, and we're in a period of economic recovery — the stock market is booming, corporate profits are at an all time high, and so on . . . but unemployment remains officially at very high levels and unofficially matches the worst years of the Great Depression II. How are high prices on the stock market — all speculative gains with no increase in the production of marketable goods and services to back it up — a good thing? This sort of speculation and money creation/spending without linking the money supply to the present value of marketable goods and services led to the current mess we're in (and we just read that housing is now in a "double dip" recession), as well as to the Savings and Loan crisis, the Crash of 1929, the Panic of 1907, the Panic of 1893, the Panic of 1873 . . . just keep going.

Back in 1937 in The Recovery Problem in the United States, Dr. Harold Moulton, president of the Brookings Institution, stated that there are two critical factors in any economic recovery: employment and production. He didn't mean artificial job creation financed by redistribution, or production for which there was no demand except for government subsidies. No, Dr. Moulton was quite specific. Forget about cutting consumption to force savings to finance new capital and create jobs. Forget about "reflating" the currency, keeping prices high so that overextended companies and those too big to fail continue to make enormous profits. Forget about "innovation" in new technologies that only replace workers from badly needed jobs. What needs to be done is to open up ways for people to be able to produce by means of both labor and capital.

Mr. Obama said that we need to raise American productivity. As he noted, steel companies that once used 100 workers now employ 10 to do the same thing. Evidently we need to do even more of this . . . thereby doing more people out of jobs. "Productivity" is, after all, defined as "output per labor hour." Productivity gains are therefore made by getting rid of workers and replacing them with increasingly advanced technology. Mr. Obama's solution to this is to innovate even more, thereby increasing productivity. This will eliminate jobs, but education will, according to the president, train people for the new jobs that will be created. What new jobs? Technology is eliminating them faster than they can be "created."

There is, however, a solution. Enact Capital Homesteading as soon as possible. As an old article about the ownership revolution many years ago put it, "If the Machine Wants Our Job, Let's Buy It." Does it really matter if you are paid for your ownership of labor, or your ownership of capital, as long as you own it?

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"Power Naturally and Necessarily Follows Property"

Although yesterday we concluded our short series on the connection between the propertyless condition and the "condition of dependency" — slavery — there is always something more to be said, especially if (as it turned out) people still have questions. This is only to be expected, for there is a serious and widespread lack of understanding about property (private or otherwise) in our society, and consequently widespread misunderstanding of other social institutions based on or derived from private property. These include such things as money and credit, banking, and political power.

It is this last that concerns us today. With all due respect to President Obama and his performance in last night's State of the Union address, he did not say one word about the importance of empowering people politically and economically through direct and sustainable ownership in the means of production, at least that we recall. Rather, the talk was all the need for job creation and for the nation to set aside bipartisan politics and start pulling together to achieve the president's goals.

We agree. There is a serious need to come together to reach a common goal . . . but the goal should be one on which people can agree, rather than on which they "agree to disagree" in order to achieve a superficial and meaningless — and ineffectual — consensus. Obama gave us a salutary and much-needed pep talk, but a State of the Union address is not supposed to be a pep talk. It is supposed to be a forum in which the president presents the current condition of the country and gives solid policy guidelines about what the administration intends to do, not vague promises about Keynesian "job creation" that will magically take place once the other side sees reason and does things his way.

Not that the Republicans have anything positive to offer, either, although they are on target with the need to control spending. What with the president being right about the need to come together, and the Republicans being right about the need to control spending, we have an instance, sadly not unique in history, of two rights making a wrong.

How's that?

As should come as no surprise to readers of this blog, we believe the goal of "job creation" for the sake of providing people with incomes instead of to provide producers with the human factor of production is wasteful as well as pointless and demeaning, to say nothing of being ineffective as a means of bringing about economic recovery from the Great Depression, Part III. "Job creation" is simply an expensive way to achieve redistribution, and helps reinforce the deplorable "entitlement mindset" that has grown up in the United States since the effective end of "free" land in the late 19th century. As F. Ray Marshall, U.S. Secretary of Labor under President Carter, is reported to have said, "There is no more complete rejection of a person than to give them a job you know and they know is useless." (Editorial note: change "a person" to "persons," and we agree 100%.)

The solution to this problem? Focus on production and wealth creation in which everyone can share equitably, participating in that wealth creation by contributing both labor and capital. In short, every citizen should have the effective and meaningful opportunity to become an owner of capital, just as each person is already presumed to own his or her labor. This might require some explanation.

In principle, at least in the United States and the British Commonwealth, every natural person (meaning every human being, man, woman, and child) has the natural rights to life, liberty, property, and the pursuit of happiness (i.e., the acquisition and development of virtue). In reality, trapped by what Louis Kelso and Mortimer Adler called "the slavery of [past] savings," most people are effectively cut off from ownership of a meaningful stake of income-generating assets: capital. Vide Kelso and Adler, The New Capitalists: A Proposal to Free Economic Growth from the Slavery of Savings. New York: Random House, 1961.

Note that "savings" in this context refers to existing accumulations of wealth, by definition a monopoly of the rich. Kelso and Adler advocated a shift from past savings to "future savings" made available through the functioning of Say's Law of Markets (Jean-Baptiste Say, Letters to Malthus, 1821), and the application of Say's Law in the real bills doctrine explained by Adam Smith (The Wealth of Nations, 1776), Henry Thornton, (An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, 1802), and later, after the British Bank Charter Act of 1844, by John Fullarton (On the Regulation of the Currencies of the Bank of England, 1845), and by Kelso and Adler's primary source, Dr. Harold G. Moulton (The Formation of Capital, 1935).

 








At one time, there was a property qualification to vote. In the United States, this was removed from the Constitution in 1820 on the grounds that no free white male over the age of 21 should be prevented from voting simply because he did not own property in sufficient amount or at all. This was over the protests of such men as Benjamin Watkins Leigh of Virginia and Daniel Webster of Massachusetts. The position of these men and others was that, if non-property owners got the franchise, they would use their political power to take property away from those with property, and redistribute it to those without. As Leigh observed, "Power and property can be separated for a time, but divorced, never. For as soon as the pangs of separation are felt, property will take over power, or power will take over property." Webster concurred: "Power naturally and necessarily follows property."

Consequently, since the 1890s when the "free" land made available by Abraham Lincoln's 1862 Homestead Act effectively ran out (the program continued well into the 20th century, but affected rapidly decreasing numbers of people) and the predominant source of income for most people shifted from ownership of land, to a wage paid by an employer, the federal and state governments have passed increasing numbers of laws intended to redistribute existing wealth in an effort to make the distribution of wealth marginally equitable. As was only to be expected, this has increased government power enormously, as it has vested effective ownership of the means of production in the State. Ownership and control are the same in all codes of law; if you hold legal title to something, yet can only use it as and when I give permission, the law maintains that I, not you, am the owner. Unfortunately, while the social legislation was and remains necessary to keep society together after a fashion, it has done nothing to address the underlying problem: the propertyless condition of the great mass of people. They remain powerless, with the State necessarily stepping in and providing (or, more accurately, trying to provide) that of which the lack of ownership of the means of production has deprived most people.

Thus, Webster and Leigh, while correct, were doing the exact opposite of what they should have done. Rather than restrict the franchise to those who owned a meaningful stake of capital (into which category we can put land as well as technology), the effort should have been to make certain that the universal franchise was matched by universal opportunity to become an owner of capital. Socialism and the Welfare State try to make everyone an owner, but only achieve this by abolishing private property in the means of production, and substituting the State for private owners controlling their own lives with the power with which property vests them.

The State, however, cannot make everyone an owner by destroying ownership. The State can only legitimately provide a level playing field, that is, equality of opportunity, for everyone to be an owner, as Lincoln did with land in the 19th century. What is needed now is a "Capital Homestead Act," a concept discussed on the website of the Center for Economic and Social Justice ("CESJ").

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Both Ends Against the Middle

You can say what you like about President Obama and his efforts to disengage the United States from Afghanistan, but he is at least consistent — consistent in missing the point and not seeing the obvious. In today's Washington Post, it is becoming increasingly evident that Mr. Obama hasn't fully grasped the situation in that part of the world . . . or in this part, for that matter. ("Obama's Wars: The Pakistan Conundrum," The Washington Post, 09/29/10, A1, A13.) He seems to keep insisting that programs and policies based on flawed principles — where there are principles at all — are going to work. We just need to make a greater effort, reach out to more people . . . and spend more money. Unfortunately, proceeding on the basis of flawed principles is indistinguishable from denying reality.

The reality of the situation in Afghanistan is that the war is being fought by elements that can retreat across the border into Pakistan any time Afghanistan gets too hot for them. This is a standard technique in "low intensity conflict," or the sort of war you fight without "set battles" where the two sides line up and slug it out (that's more than a little oversimplified, but we're trying to make a point here). It's like the bully who can run into his house after beating you up when he sees your older brother coming, and then sneer at you from the safety of his (parents') living room. If you take the bait and throw a rock through the picture window, it will not be the bully who suffers, but the bully's parents, your parents . . . and, especially, you, for being so stupid.

Of course, the right thing to do would be to go to your parents and get them to try and get the bully's parents to put a stop to his anti-social activities. (Don't laugh. It could happen.) Failing that, get the police to take action . . . if you don't mind being completely ostracized by the neighborhood for being such a baby and calling in the cops when you should be handling it yourself. (Which begs the question — if you could handle it yourself, why would you call in the cops?) The problem in Afghanistan is that the bully's "parents" — the civil and military authorities giving the bully safe refuge — are either unable or unwilling to do anything about the problem . . . and the "police" (the United States) are themselves the ones being bullied.

Of course, even if the Pakistani authorities could be persuaded to act — and Mr. Obama is working on the ineffectual civil administration rather than the military that would be able to act effectively — there is no long term (or short term) program to deliver justice, both economic and political, the lack of which is at the root of the situation. For its part, of course, the military prefers to blame India for all its problems, thereby avoiding being attacked by the bully themselves.  Only a program that would build ownership into all citizens, including (or especially) the military — such as Capital Homesteading — has any chance at succeeding, if only by giving the military a stake in establishing and maintaining a peaceful and just society.

Capital Homesteading deserves consideration not just because it would bring justice to all Americans, but because it has the potential to extend the real American revolution throughout the globe, establishing peace and justice everywhere.

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Unplanned Obsolescence

Today's Wall Street Journal had what many might consider the media coup de grace for the Obama presidency. Fouad Ajami's op-ed piece, "The Obsolescence of Barack Obama" (Wall Street Journal, 08/11/10, A15) is a devastating critique. It paints a picture — true or not — of a man who has utterly failed, a president who, less than halfway through his term of office, has not just been relegated to the dustbin of history, but who has already been collected and incinerated.

That's a pity on more than one account. Primarily, of course, the opposition isn't offering anything much better. Less spectacularly bad, of course, but still not much better in objective terms. To all appearances, the liberal Democratic hegemony with no vision will be overturned in a couple of months by a conservative Republican hegemony with no vision. The only advantage is that, with Barack Obama to blame for everything, the lack of vision will not become obvious for at least four more years. Precious time will be thrown away arguing about who is more to blame for the rapid slide of the United States into a second rate economic, and third rate moral power.

The worst thing about the president's unplanned obsolescence, however, is that it can very easily convince him that "they" were out to "get him" all along. The signs of incipient "Nixonism" are there, from the grandiose gestures to the blaming others (especially George W. Bush), and, of course, the increasing suspicion that the media are after him. It would be very easy for Mr. Obama to give up, blame everyone else for his failure, declare that in two more years they won't have Barack Obama to kick around any more, and sit as a self-pitying and ineffectual lame duck for the rest of his term.

Or he could pull off another miracle, only this time one with more substance. He needs a vision and a plan, or at least something other than warmed over Keynesianism. That "something" can be found in the immediate passage of the Capital Homestead Act. Within three months of the passage of the Act, it is entirely possible that a real economic recovery will be under way — not a recovery that the politicians and Wall Street manufacture to give the consumer enough false hope to start borrowing and living beyond any possible means again.

Take one small example. Right now companies are very prudently holding on to cash, neither reinvesting it in the company nor paying it out as dividends. Under Capital Homesteading, however, there is a source of financing that does not entail either retained earnings or debt. New equity can be issued and sold to investors who purchase "full payout" shares on credit, and who collateralize their loans with capital credit insurance.

The company is not on the hook, because equity is ownership, not debt, and there is no obligation to pay if the profits aren't there. The investor is not on the hook, because if the stock fails to generate sufficient dividends the insurance will take care of it. Admittedly, the insurance company is on the hook, but that is only if the investment doesn't pay off. In any event, the insurance company should have factored the risk of failure into its premiums, and collected enough to make good any losses.

Current cash holdings above working capital needs could be paid out as dividends to existing shareholders, increasing consumption income and stimulating the economy naturally. If done quickly enough, it might even be possible that the old low dividend tax rate will still be in effect at the same time that the dividends are tax deductible at the corporate level. This brief window wouldn't last very long, of course (a basic principle of fair taxation under Capital Homesteading is that ALL income above a very generous exemption be taxed at the same rate) — but it might be just long enough to give a terrific boost to consumption at just the right time, and be a tremendous incentive to pay out as much as possible as fast as possible before the window closes. The rich receiving the dividends wouldn't be able to reinvest them in financing new capital, and would be "forced" to spend the "windfall" . . . increasing effective demand and creating new jobs without a government subsidy.

It's all up to Obama, now. Will he be satisfied with going down in history as the worst president in American history — or be ranked among the top three, right after Washington and Lincoln? It's his decision.

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"The Strongest Consumer Protections in History"

It may be one of the greatest self-delusions in history. Earlier today, President Obama signed "the most sweeping overhaul of financial regulations since the Great Depression" into law. According to the report from the Associated Press on Yahoo! News, Mr. Obama declared that, "the American people will never again be asked to foot the bill for Wall Street's mistakes." It wasn't clear that we were asked the last time. Nobody asked me, nor did anyone pay any attention to my suggestions on how to avoid the very thing Mr. Obama has now signed into law.

In any event, there are so many things wrong with the so-called "overhaul" that it's difficult to know where to begin. That being the case, we will limit ourselves to what seem to be the three most important items. Starting at the bottom (which is where increasing numbers of Americans will soon find themselves),

Three: The approach to regulation is based on the false idea that the State can command the system to do by fiat what the system should be designed to do by itself. We've made this point before, but the system should incorporate internal, systemic controls to self-regulate, not have the State or some other authority try to impose desired results. The only result of the fixed belief that the State can do everything will be that people and businesses who can hide better or have better lawyers will do exactly as they please, while the more honest or poorer will bear the cost and the blame. The "financial services industry" lauded the repeal of the Banking Act of 1933 ("Glass-Steagall") that contained such internal, systemic controls in the late 1990s, assuring the Congress that external controls in the form of governmental regulations were more than sufficient to prevent disaster. Right. The partial repeal of Glass-Steagall gave us the savings and loan meltdown. The full repeal got us the present "recession." We can hardly wait for what's next.

Two: The overhaul — such as it is — is within the framework of Keynesian economics. Unfortunately, Keynesian economics (as every reader of this blog is aware) does not reflect reality, either the reality of money, credit, banking, and finance, or the reality of human nature. The worst thing that the so-called overhaul can do is exactly what it will do: lull people into a false sense of security by convincing them that something substantive has been done.

And in the Number One spot:

There is no real protection for the consumer or anybody else in the overhaul. The idea that you can "protect" people by maintaining the present system that systematically strips people of ownership of the means of production, then the wage system jobs, and, then, finally, of welfare payments as the State goes bankrupt is hardly "protection," unless you're talking about the sort of protection offered by the local mob boss.

No, the only real protection any consumer can have is to become an owner of a meaningful capital stake sufficient to generate a secure income to be able to meet common domestic needs adequately. As William Cobbett said in one of our most overused quotes, "Freedom is not an empty sound; it is not an abstract idea; it is not a thing that nobody can feel. It means, — and it means nothing else, — the full and quiet enjoyment of your own property. If you have not this, if this be not well secured to you, you may call yourself what you will, but you are a slave. (A History of the Protestant Reformation in England and Ireland, 1827, §456)

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Have Mercy, I Say, Mr. Obama!

In the 1947 film Life With Father, Clarence Day, Sr. remonstrates with God over his wife's illness. "Have mercy, Sir, I say, have mercy!" he thunders. We are tempted to implore President Obama in the same words, although, perhaps, with less vehemence and more bewilderment. After all, Mr. Day, as played by the inimitable William Powell, was clearly certain that God would hear him. We cannot say the same for Mr. Obama, who is much less accessible than the Deity portrayed in Clarence Day, Jr.'s God and My Father (New York: Alfred A. Knopf, 1932), on which parts of the film were based. Still, we have to keep trying to reach him. There are just too many problems cropping up, the majority of which could be solved by the application of Just Third Way principles. To take a few examples,

The Economy

According to today's Wall Street Journal ("Fed Grows More Wary on Economy," A2), the nation's central bank "offered a subdued assessment of the U.S. economy." This is due in large measure to "developments abroad" and "signs that the U.S. economy hasn't built much momentum after turning around in mid-2009" — a "turnaround" that most of us seem to have missed. That is, countries and consumers aren't going into debt fast enough to generate the effective demand necessary to inflate the earnings of companies that want to use cuts in consumption to finance new capital formation, rather than Kelsonian pure credit and expanded capital ownership to do the same thing on a more financially sound, rational, and sustainable basis.

European Debt Crisis

Europe wants to get out of the current debt crisis by cutting costs. Obama wants them to get out of it by increasing debt. ("Merkel Rejects Obama's Call to Spend," Wall Street Journal, 06/24/10, A10.) While we've more sympathy with spending less rather than spending more, neither does anything to restructure the system so that productive activity takes the place of redistribution through inflation and the tax system. The underlying problem remains unresolved: speculation, gambling, and government spending are preferred over productive activity in which people can participate as direct owners of both labor and capital.

Confidence in the Executive

"Americans are more pessimistic about the state of the country and less confident in President Barack Obama's leadership than at any point since Mr. Obama entered the White House." ("Confidence Waning in Obama, U.S. Outlook," Wall Street Journal, 06/24/10, A4.) The Oil Aneurism — for which BP is now blaming the U.S. government! — that the pundits are now claiming is much worse than Katrina, with less response and effectiveness than Bush, the economy (vide, supra), immigration, the upcoming election, manipulation of unemployment figures, the escalating housing crisis, etc., etc., etc. People are still waiting for the change for the better Mr. Obama promised, not this constant stream of change for the worse.

Derivatives

In 1907, the president of the Knickerbocker Bank and Trust in New York City used the bank's assets to speculate in copper shares. The result was the "Panic of 1907" that almost destroyed the world's financial system. Consequently, commercial banks were prohibited from owning anything other than their own shares or government securities. In the 1920s, massive money creation by commercial banks to finance speculation by their investment banking divisions led to inflation of the value of shares on Wall Street and the Crash of 1929. Consequently, the Banking Act of 1933 — "Glass-Steagall" — separated commercial banking from investment banking. The partial repeal of Glass-Steagall in the 1980s gave us the Savings and Loan debacle. The full repeal in the 1990s gave us the current "economic downturn."

Congress is now valiantly trying to retain the ability of commercial banks and other financial institutions to "invest" in speculative instruments and promote consumer debt ("Negotiators Ease Finance Rules," Wall Street Journal, 06/24/10, A8), evidently to make certain that the gamblers and speculators continue to make huge profits from the increasingly wild swings in the stock market and promote the ephemeral "Jobless Recovery." ("Volcker and Derivatives," Wall Street Journal, 06/24/10, A20.)

Why not implement Capital Homesteading so that all new money created is linked directly to the present value of existing and future marketable goods and services through widespread direct ownership of the means of production? Let those with existing accumulations gamble and spend to their heart's content, increasing effective demand without redistribution by using savings — unconsumed production — to consume unconsumed production.

Please, Mr. Obama, have mercy, I say!

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McChrystal Mania, or, Obama's Deliverance

It's the best thing that could have happened for Obama. The Chinese currency situation is looking worse and more inscrutable by the minute. His effort to save individual homeowners from foreclosure has clearly failed miserably. The "official" unemployment rate is ten percentage points below the unofficial rate — and who knows what the real rate is? Even Wall Street, the worst possible measure of the strength of the productive sector, can't sustain a bull market in a bear economy. The United States government has, to all intents and purposes, reached a point of functional overload.

Life, liberty, and property? What are those? As for the pursuit of happiness, a.k.a., the acquisition and development of virtue . . . uh, huh. Anyone who is seriously concerned about the moral breakdown of society seems inevitably to want to use the State to ram a private version of truth, love, and justice down everyone else's throat. How well that recipe for failure works can be seen in today's earlier posting on the career of the supremely individualistic Alexander the Great.

Consequently, Obama desperately needs something to direct attention away from his own complete lack of vision, effective leadership, and his apparent belief that the State can solve any and all problems by simple fiat. I could imagine that the "secret meeting" this morning at the White House consisted of Mr. Obama giving heartfelt thanks to General McChrystal before letting the man know that his Commander-in-Chief is going to throw him to the wolves and (to mix metaphors) crucify him. "Firing" a military commander — especially one who uses foul language! (How could this country ever tolerate a soldier in the line of battle who uses "the F-word"?) — is the only way to 1) save Obama by distracting the public, and 2) save Obama by offering a scapegoat, and 3) save Obama by giving the appearance of actually doing something.

Well . . . Mr. Obama could always do something that has the potential actually to work . . . .

First, officially reprimand General McChrystal. He should never have spoken critically of the administration . . . any more than he should speak uncritically. At least in public. Mr. Obama should, however, ask himself the one question no one seems to be asking: is what General McChrystal said true? If so, what are you going to do about it? You don't make a bad situation any better by ignoring legitimate and accurate criticisms and surrounding yourself with a crowd of adoring lickspittles who hang on your every word and praise you endlessly.

Second, send him back to work. Told that General Grant was behaving scandalously by swearing and drinking whiskey (!!), Abraham Lincoln informed the complainants, "I can't spare that man. He fights."

Third, give the man what he needs to win: an effective counterinsurgency strategy. We suggest a variation on Capital Homesteading — which wouldn't be a bad idea for the United States, either. Widespread direct ownership of the means of production is the best and most effective way to secure each person's natural rights. With the recent discovery of vast mineral wealth in Afghanistan, the country has the potential to make every citizen a direct owner of that wealth through the establishment of a Natural Resource Bank, with every citizen a shareholder. As for the economic growth and development of the rest of the country, make every citizen a direct shareholder in a soundly structured central bank.

Obviously, we can't even outline the basic principles of such a strategy in this short posting, but that's already available in the book, Capital Homesteading for Every Citizen. Why not send something to Mr. Obama and suggest that, instead of looking for scapegoats, he start looking at ways to save this country and the rest of the world instead of his own public image?

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"A Rare Chance to Remake the Fed"

Today's earlier posting in the "Restoration of Property" series (below) outlined specific reforms that need to be implemented if the Federal Reserve System (the central bank of the United States) is to get away from serving as a source of political pork and return to the purpose for which it was designed, intended, and is now desperately needed: provide liquidity for private sector growth by discounting qualified industrial, commercial, and agricultural paper to finance projects that will produce marketable goods and services, and do so in a way that opens up the opportunity for all citizens to participate in production as owners of both labor and capital. Thus, it seemed a bit of serendipity and was momentarily encouraging to read the headline on the lead article in today's Washington Post: "A Rare Chance to Remake the Fed" (Neil Irwin, A1, A11).

The encouragement was short lived. The lead-in continued in smaller type, "Vice Chairman is Retiring; Most of Bank's Board Will Be Obama Nominees." Reading the article, it became clear that the idea is not actually to "remake the Fed," but to consolidate the final steps in a takeover process that started almost before the ink was dry on President Wilson's signature on the Federal Reserve Act of 1913. As the article states, "During the past two years, the Fed has taken extraordinary actions to contain a financial crisis and prop up the economy. Now the institution must decide how and when to wind down some of those emergency measures."

Contrary to the rosy implication contained in this passage, the crisis is anything but over. As the article hints, the only thing that has kept the economy going (at least for selected groups, such as companies "too big to fail" and holders of toxic assets finding a ready market for their badly depreciated assets at inflated prices) are those "extraordinary actions." While economists and other experts daily trumpet that the Great Recession is over, the stock market and the economy at large continue to reel at the slightest hint that the world's governments might stop printing money and spending it in such massive quantities.

The idea that somebody might someday actually have to pay back the colossal — and still growing — mountain of debt is ignored, while the necessity of working to rebuild the economy by producing marketable goods and services so that there is something to redistribute and tax is nowhere mentioned. Instead, "economic growth" seems to be defined strictly in terms of consumer spending, government spending, and, above all (bow), how the stock market is doing — in other words, how much money the rag-pickers and secondhand dealers in debt and equity can exchange among themselves without producing a single marketable good or service. Current monetary and fiscal policy is oriented exclusively to dividing up an ever-shrinking pie without bothering to figure out where to get another pie or even rebuild the bakery.

Perhaps most astounding is the extraordinarily damaging admission by unnamed "sources" that, "the president is seeking one or two strong macroeconomists — people well qualified to judge how the economy is evolving and how and when to make monetary policy less supportive of growth — and one person with a strong financial markets background." (A11) Thus, not only is anyone not bothering to try and figure out how to 1) produce marketable goods and services 2) in a way in which more (preferably all) people can participate as owners of both labor and capital, they are stating outright that the Fed's (meaning the government's) policy is to stifle economic growth, and do so in such a way as to benefit that sector of the economy, the "financial markets" (and there's a reason Wall Street and the other exchanges throughout the world are called secondary markets) that produces nothing in the way of marketable goods and services.

For all intents and purposes, then, "remaking the Fed" in the current lexicon means confirming the central bank and the central government in their ruinous course of spending without producing, borrowing without repaying, and creating money — money necessarily being a direct derivative of production and an aspect of private property — completely separated from the production of marketable goods and services.

Rather than working to make the Federal Reserve "less supportive of growth" (!), President Obama should seize his "rare chance" to "remake the Fed" and implement some genuine reforms. Instead of talking a good game about "change" without actually getting out on the extremely uneven playing field, Obama has the opportunity not only to duplicate the achievements of another president from Illinois, but to do Abraham Lincoln one better by emancipating all Americans from involuntary economic servitude, and extending the homestead concept from land alone to all forms of productive assets by signing the Capital Homestead Act of 2012 on the 150th anniversary of Lincoln's revolutionary initiative.

Obama has only to act — and the time is now. It may only need your participation at the peaceful rally outside the Federal Reserve on April 15, 2010 to convince him.

#30#

Message to Obama

I am suggesting that everyone contribute a few minutes of Social Justice Tithing Time to raise questions that encourage President to consider the bottom-up Capital Homesteading alternative to the traditional trickle-down solutions to every one of the subject areas in which citizen inputs are requested. It's also important to mention CESJ and its website for details, especially the summary of the Capital Homestead Act.

Here's something I just composed that can give people some ideas on one of the major issues — universal health care — that reflects the need for changing the trickle-down economic system to a bottom-up approach to growing the economy in ways that would empower all citizens through Capital Homesteading:

Mr. President, have you or your team studied "The Citizens' Plan for Healing America's Health Care System"? It was developed by the Center for Economic and Social Justice (CESJ) and the Coalition for Capital Homesteading? You can read a summary at www.cesj.org.

This plan agrees with your goal that every American can and should have access to quality comprehensive and affordable health care, and with a radical reduction in administrative and regulatory costs and maximum control over health care decisions. It will encourage health maintenance delivery systems jointly-owned by providers and consumers as well as stakeholder-owned health insurance cooperatives to compete with the Big-Six health insurers, thereby lowering premiums costs. We strongly believe your goal can best be achieved through a more just, more democratic and more productive market-disciplined economy.

But this will require a new vision, a new framework and specific changes to Federal tax laws and monetary and credit policies of the Federal Reserve System. Universal health care cannot be achieved without a systemic bottom-up solution to America's current financial meltdown that also addresses our already unsustainable Federal debt for entitlements of $500,000 for each American household.

This new framework (called "Capital Homesteading for Every Citizen") would accelerate green growth in the productive economy, do so without inflation, create millions of new private sector job incomes, leave more incomes in people's pockets to pay for their own health and living needs, provide health care vouchers for the poor, eliminate budget deficits, and, as a fundamental right of citizenship, empower all citizens with equal access to future ownership of productive capital and capital incomes.

Mr. President, we support your commitment to change. We hope you and the Congress will seriously study and adopt the Citizens' Plan for healing and overcoming the ills of the present health care system.

I hope that our network will respond to this challenge. Capital Homesteading is the only strategy around that can achieve the original American Dream for every man, woman and child. Each one who has that knowledge has a personal responsibility to help make the current system more just.

#30#

We Have Seen the Future . . . And It Doesn't Work

Listening to President Obama's speech last night, it becomes increasingly obvious that, despite his very evident good intentions, he is headed off in the wrong direction. He has managed to surround himself with a group of Ivy League elitists who still believe that the State can do anything, as long as you throw enough money at the problem.

Much of what the president says we can take as enthusiastic, if misdirected cheerleading. Unfortunately, the situation does not call for mindless optimism or money-tossing, but a genuine solution. The stock market is continuing to bounce up and down as speculators try and figure out whether the president's confidence will do the trick, or if something more substantive is needed. Meanwhile, there seems to be an adamantine belief among the powers-that-be that gritting our teeth, and reminding ourselves that, "we are not quitters" is enough to turn things around.

That, and a few more billions for the banking industry so that the State can nationalize the banks and establish a monopoly over access to the means of acquiring and possessing private property.

The main problem is that nothing the president and his advisors propose or even say does anything to diminish State power, break up the power of concentrated ownership, or, worse, increase production or broaden ownership of the means of production by ordinary people. There is no appreciation or even recognition of the four essential elements of an economically (and thus politically) just society:

• Limited economic role for the State,

• Free and open markets as the most just way to determine just prices, just wages, and just profits,

• Restoration of the rights of private property, and

• Widespread direct ownership of the means of production.

Clearly, both the president and his advisors are still enamored of the Keynesian delusion that money and production need not be linked directly (or at all), and that the State can run up deficits forever with no ill effects, to say nothing of being convinced that the non-productive State can run things better than a productive private sector. This is the only way to rationalize Mr. Obama's increasing the federal budget by nearly $1 trillion in "stimulus" spending, claiming he will not increase taxes for anyone making less than $250 thousand a year, and (instead of balancing the federal budget) cut the deficit in half.

Logically, the only way to make up a tax cut on one group without increasing the deficit is to tax other groups more. Thus, Mr. Obama necessarily proposes (even if he doesn't say so) to engage in the ever-popular "soak the rich" technique, which somehow never seems to have the intended results.

It's been made clear in many postings on this blog that we consider the rich part of the problem. Their monopoly over access to the means of acquiring and possessing private property (i.e., "capital credit") means that the vast majority of humanity is condemned to perpetual servitude in the form of wage slavery, debt slavery, welfare slavery . . . and whatever else you can come up with to ensure a condition of dependency for most of the rest of us.

Unfortunately (and this is one of the reasons we regard Keynesian economics as certifiably insane), the rich are absolutely necessary within the Keynesian paradigm. To understand this, let's look at the Keynesian paradox into which the president has locked himself.

"Soaking the rich" sounds well and good . . . in theory. A State should never run up a deficit, but should tax at a level sufficient to meet current expenditures. Further, sticking it to the rich and powerful is always a popular move in a presumably egalitarian society, where unrecognized barriers to full participation in the economy foster resentment and envy instead of the more rational response of organizing to eliminate such institutional obstructions in a just and sane manner through acts of social justice. Refusing to increase taxes on the poor and middle class and promising to cut the federal deficit in half, however, leaves "the rich" as the only source of funding for the stimulus and the decrease in the deficit.

No one, not even the State, can create new money to increase demand for more than there is production to buy. Nor can taxes be more than the aggregate amount of current income (current production) and savings (unconsumed past production) that exist in the country. Even a State that indulges in levying the "hidden tax" of inflation by printing money to cover its deficits can't tax more than a country produces. All the State can do is redistribute purchasing power by stealing the value of older currency and transferring it to recipients of the State's largesse by printing additional debt-backed money. Prices rise in response to the greater amount of currency in circulation, fostering the illusion that wealth is increasing when, in fact, inflation doesn't produce wealth at all.

The biggest danger in Mr. Obama's admittedly attractive enthusiasm and conviction is that hope and change will, in and of themselves (with the addition of a few billion more dollars) solve all our current problems. On the contrary, his reliance on Keynesian advisors puts him into an untenable, even paradoxical position. Keynesian economics, which depends on protecting the rich as absolutely necessary for the wellbeing of the poor, does not allow him to do what he wants to do.

Mr. Obama wants to focus on creating jobs as a means of getting the economy moving again. "Creating jobs" is directly opposed to the natural job creation that comes in response to the increase in demand that could result by investing in new productive assets in ways that make people who formerly owned no capital into capital owners. The future consumption incomes of former non-owners would result from new job and ownership incomes from the private sector, not State largesse. The rich would be encouraged to use their investment income for consumption instead of more investment.

A State program of "job creation" almost inevitably means "boondoggling," or "make-work" jobs outside the market system. These kinds of jobs are intended only to provide people with income, not vest them with ownership of new production. Boondoggling and featherbedding do nothing to increase production of marketable goods and services, but are purely inflationary. Boondoggling only serves to increase the waste and inefficiency that Mr. Obama says he wants to eliminate.

To make this clear, in the "Bizarro World" of Keynesian economics there is a necessary — repeat, necessary — tradeoff between employment and inflation. If you want full employment, you must endure inflation caused by government deficits. If you want low inflation, you must put up with high unemployment. Any other arrangement is impossible . . . in Keynesian economics.

This is because (in Keynes' upside-down universe) there are only two ways to create jobs. The first is to get the rich to invest in new capital formation. As we learn in college macroeconomics courses, the State increases consumer spending either by cutting taxes or handing out money. The increase in "effective demand" lures businesses to use their savings to invest in new capital, which creates jobs, and increases effective demand even more. If the State either cuts taxes or hands out more money, it has to engage in inflationary money creation (borrowing from the central bank) in order to make up the loss in tax revenues or finance the handouts. This is because if the State taxes the rich in order to make up for lost tax revenues or fund the handouts, it decreases the amount the rich can use to finance capital formation and create jobs.

The second means of job creation is for the State to subsidize jobs directly by paying businesses to hire people for whom the business would otherwise have no use. The funds for a direct State subsidy can only come from increasing taxes on the rich (in which case you take money away from the rich to hand back to the rich so they can afford to hire people they don't need to hire), or by increasing the deficit.

Thus, in the Weird World of Keynes, unless you want to stifle job creation by taking away the money the rich have to invest, increased government spending can only come by increasing the deficit. Why? Keynes believed that it is impossible to finance capital formation out of "future" or "forced" savings, that is, by extending capital credit to be repaid out of the future profits of the new capital itself.

According to Keynes, then, money to stimulate demand, subsidize jobs, or decrease the deficit cannot come from the rich, because in the Keynesian universe the savings and income of the rich are the only source of financing for new capital. If the government taxes away the wealth of the rich to decrease the deficit, the rich can't invest their savings in new capital formation, and no new jobs will be created. If the government taxes away the wealth of the rich in order to subsidize job creation, all that is accomplished is that the State takes money away just to hand it back — the situation remains the same, and no new jobs will be created, because the State simply restores the status quo: businesses reduce jobs to meet their tax bills, and then hire the people back to fill subsidized positions.

No, the only way to create jobs in Keynesian economics is by increasing the deficit . . . and Mr. Obama has just pledged to cut the deficit in half at the same time he has promised to create jobs. The president, despite his welcome optimism and conviction that things do not need to be the way they are, has by his reliance on Keynesian economic advisors trapped himself in an impossible situation. Within the Keynesian framework, Mr. Obama can only keep his promise to create jobs by breaking his promise to cut the deficit in half, and he can only keep his promise to cut the deficit by doing what Keynesian dogma tells us will destroy the economy forever.

Of course, if you admit the validity of Say's Law of Markets and the "Real Bills" doctrine, and combine them with the expanded ownership proposals supported by the binary economics of Louis Kelso and Mortimer Adler, you don't need the rich. You can tax away the gargantuan mountains of wealth by means of which the rich, supported by the Keynesian dogma that the rich, and only the rich, can finance and own the new capital that presumably creates jobs for the rest of us, hold the world hostage. It doesn't seem to occur to anyone in power that if everyone owned an adequate stake of capital, we wouldn't need artificial job creation, inflation, State control over virtually every aspect of our lives — or the rich.

There is a way out of the dead end street that Mr. Obama has managed to get himself into by following the dictates of Keynesian economics. That would be to implement Capital Homesteading at the earliest possible date, not after he and his advisors have gotten us into a worse mess than we are already in. It will not be an immediate "quick fix," and there will be shrieks of pain . . . but the loudest shrieks by far will come from Keynesians who see their religion discredited, their idols thrown down, and the State moneylenders driven from the temple.

Doubling Down in Washington

We wish that our 200th posting could be a little happier.

In the ultra high stakes political games played in Washington, DC, $1 million is the lowest chip. The amount on the table at risk is usually measured in billions. According to the headline in today's Washington Post, however, Mr. Obama has raised the stakes in his game of Big Buddy Bailout to more than $1.5 trillion, just as we predicted in this blog last week. This is more than double the original wager of $750 billion.

Mr. Obama appears to be "doubling down." Doubling down is a technique in Blackjack in which you double your bet after receiving your first two cards. The difference, however, between straightforward gambling and what Mr. Obama is doing is that the president hasn't been dealt any cards. All he has is a blind faith that failed and disproved Keynesian economics will, despite decades of evidence to the contrary, finally pay off and allow the American economy to break even.

The problem, as we've been pointing out for several weeks, is that you can't create money in any amount without expecting inflation, unless you are careful always to link creation of new money to new production (not unsold past production), or to the financing of a project that will generate new production. Creating additional purchasing power for existing inventories simply makes each unit of currency worth less than before, redistributing existing wealth from current holders of financial assets to those receiving government payments.

This form of money creation can lead directly to hyperinflation, the surreal condition in which the price level rises faster than money can be created. Ordinarily, of course, the price level rises in response to the creation of additional purchasing power for existing inventories. When carried out on the massive scale that Mr. Obama is now demanding, however, the amount is genuinely beyond the power of the ordinary human mind to grasp.

The response of any producer or retailer to such a gargantuan influx of essentially worthless money will be to raise prices as fast as possible to make up for an anticipated inflationary loss that cannot, in human terms, be quantified — how do you visualize $1.5 trillion? The State then gets into the position that the Reichsbank faced in the early 1920s at the height of the hyperinflation.

The German central bank simply could not create money fast enough to meet daily transactions demand for currency, much less keep up with the inferno of the rising price level. Producers stopped producing, for there was no assurance that they could trade what they produced for anything of value. Farmers refused to sell their produce in exchange for crates of worthless currency, and there was virtually no industrial production generating anything that could be used for barter. The validity of Say's Law — that we can only purchase to the extent that we produce — was proved in the most vivid and devastating manner possible.

The German and Austro-Hungarian economies faced the paradox that unfettered money creation caused prices to rise so fast that there wasn't enough money in circulation to purchase what little was for sale. This was at a time when one U.S. dollar was "worth" 4.2 trillion Reichsmarks at the official exchange rate, and nearly 16 trillion on the black market. There were mountains of paper money in circulation, but it was worth more as waste paper and fuel than as currency. A famous photograph shows two little girls holding an American dollar, and in the background a colossal pile of German currency that, on that day, equaled that dollar.

Hyperinflation is a logical and expected outcome of Mr. Obama's proposal. Germany was ultimately saved because they gave a monetary and fiscal genius, Dr. Hjalmar Schacht — the "Old Wizard," a man with the unusual middle name of "Horace Greeley" — full power to do anything necessary to stop the hyperinflation. This he did by demonetizing all the old currency, creating an asset-backed non-legal tender but fully convertible parallel currency (the Rentenmark), and absolutely forbidding any new issuances in excess of the value of the asset backing.

The situation was stabilized, but the fear inspired by the hyperinflation was so great that the German, Austrian, and Hungarian peoples demanded absolute guarantees of future stability, as well as victims to blame for the virtual apocalypse of the war and the subsequent financial meltdown.

Adolph Hitler provided both.

Stimulus, Part V: Future Wealth and Money Creation

As we saw in the previous posting in this series, there is a source of financing apart from existing pools of savings, "savings" being construed as unconsumed wealth. This additional source of financing consists of wealth that has not yet been created, as opposed to wealth that has been created and remains unsold or unconsumed.

Obviously wealth to be created in the future does not exist in the present. If, however, we assume that the individual or business will produce the wealth at some point, we can measure that assumption and quantify it in terms of money. Our assumption rests entirely on how trustworthy we believe that individual or business to be, and our assessment of the individual's or business' ability to make good on the promise that he or it will, in fact, produce wealth in the future. Remember (and this is important, and the basis for refuting Keynes' basic assumptions) — nothing exists in the present except our trust in the promise of that individual or business. Will the individual carry out the necessary tasks to produce the wealth? Will the business exist to do the same? This is the most important question that must be answered before we can place a present value on what is to be produced in the future.

Of course, Keynes also relies on trust, but a much less acceptable kind. Keynesian economics rests on the unspoken assumption that the State will continue to exist, and that it will continue to have the power to print money at will, and be able to coerce future generations of taxpayers into paying for present consumption. This means that future taxpayers must necessarily be empowered with the means to produce so that they have the wealth to repay the debt incurred by today's consumers.

Since future taxpayers will, consistent with Keynesian economics, be in the same position as today's consumers, it is highly unlikely that the debt can ever be paid. In all likelihood, it must be passed on forever to future generations until the State goes bankrupt. The United States is still suffering under the burden of debt incurred to finance the Keynes-designed New Deal two generations ago, while the bankruptcy of Social Security, the largest surviving New Deal program, is predicted within the current generation.

In any event, the "Real Bills" doctrine allows us to take a promise to produce wealth in the future (as opposed to the Keynesian promise to spend wealth at present) to a commercial bank. The bank makes a conservative determination as to the present value of promise, and creates that amount of money. In exchange, the bank takes a lien on the future production to that amount, plus an amount to compensate the bank for whatever risk is assessed, and a just profit for providing the service. These last are considered part of the cost of the project, and are taken into account when determining the present value of the promise so that there is no question of a banking taking back and destroying more money than was created.

Thus, under the "Real Bills" doctrine, we can create money "out of nothing" . . . if by "nothing" we mean the present value of wealth that we reasonably expect to be created in the future out of the productive potential of the individual or business to which we loan the money. Given that, there is no excuse for employing the bizarre Keynesian techniques that, in effect, try to get something for nothing, when we have the power to engage in production and provide for everyone's wants and needs simply by exchanging promises quantified in terms of money and making good on them.

Stimulus, Part IV: Creating Money for New Capital Formation

In the previous posting in this series, we observed that Keynes' basic assumptions, that new capital formation can only take place once consumption has been reduced, and that production does not equal income, violate not only common sense, but Generally Accepted Accounting Principles, or "GAAP." GAAP, contrary to what some people appear to believe, do not force individuals or businesses to conform to arbitrary rules and incomprehensible practices, but try to describe what actually happens in the microeconomic universe of a business entity and develop a set of uniform rules for the application of the principles of reality. If the people running the business are rational, they attempt to conform their internal institutions (that is, their practices and rules that dictate how business is carried out) as closely as possible to reality, that is, to GAAP.

Thus, in accordance with GAAP (and reality) a business only receives money when something the business has produced is sold, and can only participate in the creation of new money when it has something of value on which a bank or other financial institution can take a lien and issue generalized purchasing power — money — by means of which the bank and the business collaborate in transforming the specific wealth held by the business, into a generalized claim on wealth held by the bank so that what is produced can be sold, and "production" turned into "income."

Individuals and businesses can also create money between them and other individuals and businesses by direct barter exchange of commodities, goods, or services. This is how most international trade is carried on. This process is also consistent with the "Real Bills" doctrine, but we won't consider it in this discussion because we are concentrating on the role of the commercial banks and other financial institutions.

Keynesians have a problem, however, with the logical outcome of the "Real Bills" doctrine, and by far the more important part of it. Factoring inventory as described above simply makes exchanges easier by turning specific goods and services into generalized purchasing power, symbols of wealth to replace the actual wealth, which are eventually redeemed when the actual wealth is purchased and consumed, with the purchase price — revenue — used to provide the money to redeem the lien, pay the service fee, and provide income for the producer.

There is something else besides inventories that individuals and businesses have that is of value, and the value of this "something else" can be quantified and measured more or less precisely. Further, this "something else" is by far the most valuable thing that an individual or business possesses as a producer of wealth. Without it, the economic value of the individual or business is either greatly reduced or disappears altogether. In accounting, this "something else" is reflected in the "ongoing entity assumption." In financial or economic terms, this "something else" is the potential that an individual or business has to produce goods and services — wealth — in the future.

Funding the Stimulus Package

Kemp Harshman, Esq., Guest Blogger

The government stimulus package (a Keynesian remedy) could (and probably will) exacerbate the current credit crisis, just as the government interventions during the Great Depression had a limited impact. It was the start of WW II that actually turned the economy around.

Even without the stimulus, the government will have to raise over $1 trillion to fund the current level of spending for federal programs. With the stimulus, it will now have to raise a total of $2 trillion in new funding. Who will continue to buy the debt when our currency is being inflated and the interest rates are suppressed to artificially low levels?

If the government cannot raise tax rates (during the recession) and foreign borrowers (like China) refuse to continue their funding, the Federal Reserve will have to rely on monetary expansion (printing more dollars so the Treasury can buy its own notes). Fed Reserve Chairman Bernanke once stated that he would drop dollars from helicopters if needed to prevent an economy from sliding into a depression. Will that really work? This article from CESJ and this article from "Money Morning" address this question.

The result of the "stimulus" could be to suppress the private sector (since credit for businesses will dry up) and delay the recovery of the economy, saddle future generations with enormous tax burdens, and undercut the value of the dollar leading to high rates of inflation. If that isn't enough, the current foreign bondholders could take their money when their notes mature and buy up assets at bargain prices in the United States, instead of holding inflated dollars. We could end up living in a country that we do not own!

It is painful to watch the American economy implode because of the greed of the fat cats and the incompetence of the bureaucrats. We are far from the end of this "global credit crisis." Let us hope that, with the promise given by Capital Homesteading and similar proposals, the free market will re-emerge, and that the American people will find better solutions to their economic problems.

How Would YOU Spend $925 Billion (and Rising)?

As the amount of Mr. Obama's "stimulus" (newspeak, evidently, for "pork") continues to escalate from incredible, to unbelievable, to beyond human comprehension, we thought we'd ask ourselves a simple question: "How would we spend what will soon amount to over $1 trillion in light of Just Third Way principles?"

This is a question that can only be answered in stages. The first stage is to realize that, in a justly structured economy, there would never be a question of the State deciding how to spend a pot of money, and then putting an unconscionable burden of debt on future generations to pay for it. No, because certain proposals under the Just Third Way are, in part, predicated on the validity of Say's Law of Markets and the Real Bills doctrine, we realize that you can't spend what you don't have. Production equals income . . . and you can't just go out and create money (additional purchasing power) that is not tied to an equivalent value of new production.

It doesn't matter how much you have piled up unsold in warehouses, how many "toxic assets" a bank holds, or even how many homes are foreclosed. The money already exists to purchase these things. Creating more money inflates the currency — and creating what will soon amount to more than $1 trillion of purchasing power tied to existing goods and services could very easily ignite hyperinflation.

The "proper" response (actually, "barely rational response") when faced with the current situation is not to create new purchasing power for existing goods and services and redistribute wealth indirectly through the extremely risky method of inflation. When faced with such a colossal mess and an inability to think of anything better, the "right" thing to do is redistribute wealth directly by raising taxes to the point where all wealth that someone is not consuming is taken and redistributed among people who will use it for consumption — or at least tax the haves enough to provide the have-nots with enough to keep them alive and well until they can get back on their feet.

Thus, stage one is to keep people alive and well by taking care of them temporarily. This is going to cost some money, but it's money that's already out there. Tax the rich enough to meet these emergency needs, then lift the tax once the emergency is over.

This leads to stage two. The haves will immediately protest that if you tax away their unconsumed wealth, they won't be able to finance new capital formation, new jobs will not be created, and the economy will decline even more rapidly.

Answer: every reader of this blog knows that the commercial banking system combined with the Federal Reserve has the power to create money. It's where Mr. Obama plans on getting the bulk of the $1 trillion pork pie he's requesting. If you can create money for consumption, you can create money for investment. You don't need the haves to finance capital formation out of their unconsumed wealth. You just need access to capital credit.

Thus, stage two is to shut off the money spigot from the Federal Reserve to the government, consumers, and speculators, and turn it on for people who will use it to finance investment in new capital. This is all the stimulus anybody needs — and it won't cost the taxpayer one cent.

For stage three, things actually get easy. We need to identify our first investment, ideally one to which every single American currently has access . . . but is unable to finance due to lack of capital (not consumer) credit — that credit coming from opening up the Federal Reserve capital credit spigot for ordinary Americans.

What is most people's single largest investment? Their house. The problem is that it's not really an investment. Housing is a consumption item . . . unless . . .

Unless you're a landlord purchasing property to rent out to a tenant. Then what would ordinarily be a consumption item for you turns into an investment (capital) for you, and a consumption item for your tenant.

That being the case, what's wrong with being both landlord and tenant? The rent you pay as tenant then becomes the means by which you as landlord pay for your investment. This is the financial technique of purchasing only investments that pay for themselves within a reasonable period of time out of the income that the assets themselves generate, that is, "self liquidating" assets. The purchase of existing facilities, including rentable space, by creating new money to do so is as sound as financing future construction — better, in fact, because you have a "track record" of established tenancy or production to provide a solid indication of the present value of the future income stream.

An added bonus (and it's a big one) is that many analysts believe housing is the primary "leading economic indicator." Save the housing market, and (so many analysts believe) you will have saved the entire economy. (You could say something similar for food and clothing, but you must live where you live — meaning you can't live where you are not — while you don't have to grow your own food or make your own clothing right there.)

Stage three is thus to save the housing market, and do it in a way that turns a consumption item into an investment so that you can create the money to save the market in a non-inflationary way. We haven't mentioned it lately on this blog, but there is a proposal to do just that, the "Homeowners' Equity Corporation," or "HEC."

A HEC is a proposed for-profit stock corporation whose shareholders would be homeowners in danger of foreclosure. HECs — and there should be many, to provide redundancy, lower risk, and ensure competition in a community — would purchase distressed properties at the current market value. HECs would obtain acquisition loans from commercial banks, which in turn would discount the loans at the local Federal Reserve at a rate reflecting transaction costs and a revised risk premium. The homes could then be leased at a realistic market rate to their former owners or new tenants.

The tenant would earn shares in the HEC as lease payments were made sufficient to cover debt service, maintenance, and taxes. When the acquisition loan for a particular property was fully paid, the tenant could exchange his or her HEC shares for title, or continue as a tenant/shareholder at a reduced lease payment, sufficient to cover maintenance and property taxes.

Financing the purchase of properties through the Federal Reserve System and its member banks would cost the taxpayer nothing and be the first step in restoring a currency backed by hard assets instead of increasing mountains of government debt. Let the free market decide what happens to those institutions deemed "too big to fail." If they truly are "too big too fail," then they won't. Otherwise, they clearly weren't "too big to fail" at all.

Ireland's Balanced Budget

As if to highlight the importance of the several mentions we've made of how the current global financial crisis is affecting Ireland, today's Washington Post carried an all-too-brief article about Taoiseach Brian Cowen's efforts to get a handle on the situation. Considering the slavish adherence to Keynesianism we see on the part of virtually all world leaders, Mr. Cowen's common sense effort to balance the budget by cutting a few billion Euros off government expenditures comes across as bold and statesmanlike, even radical.

One shocking move for Ireland, in which securing a government pension is often viewed as having achieved worldly success and a ticket to permanent financial security (I've seen "personals" ads specifying that a desirable marriage partner must have vesting in a government pension), is Mr. Cowen's call to impose additional levies on the wages of 350,000 State employees — more than 15% of the total workforce. The new deductions would take an average of 7% from workers' pay for pension contributions, previously funded without such charges. Pay increases already agreed upon would be set aside for the next two years.

It sounds harsh, especially compared to Mr. Obama's continual ratcheting up of proposed spending (now in excess of $900 billion) with promises of money for all, but Mr. Cowen's realistic approach is much more responsible and, while a bitter pill for some, lets the citizens of the Republic know that government workers are not a special class, but are in the same boat as everyone else. In contrast, at a time when the president of the United States is asking for nearly $1 trillion in new spending to add to the budget, the U.S. government is the only large organization in the country that is hiring instead of imposing pay cuts, freezing new jobs, or laying off workers.

As a Certified Public Accountant, however, I know that cutting expenditures is only a third of the solution — and usually the least third. The way to turn things around in a business or a country is not simply to 1) keep an eye on what is spent, but 2) spend what you spend wisely, and, most important, 3) increase revenue, that is, help the private sector produce more, thereby generating income and increasing the tax base.

From reports in the Irish Independent and other Irish newspapers, it is clear that Mr. Cowen and his government (particularly his Finance Minister, Mr. Brian Lenihan), are carefully scrutinizing the budget to spend wisely as well as cut expenditures. We may not agree with some of their decisions, but at this point the effort itself is more than commendable, especially as Mr. Obama seems to be making every effort to invent more and more ways to spend money that doesn't even exist.

That is why the brief article in the Washington Post caught our eye, even though buried on page D7. Yesterday, not entirely by coincidence, we sent bound copies of our book, Capital Homesteading for Every Citizen to Mr. Cowen, selected members of his government, and a number of party leaders: Mr. Brian Lenihan (Minister of Finance), Mr. Charlie O'Connor (member for Dublin South West), Mr. Enda Kenny (leader, Fine Gael), Mr. Eamon Gilmore (leader, Labour), Mr. John Gormley (leader, Green Party), and, while not a representative in the Republic, Mr. Gerry Adams of Sinn Fein, who has publicly called for participation of the Irish throughout the world in the reunification process — for which we believe a sound economy structured in conformity with the principles of the Just Third Way is a necessary first step, just as it is to finding a solution to the situation in the Holy Land.

We got multiple copies of Capital Homesteading to Mr. Obama's people during the campaign, and a CESJ member received the personal assurance of Mr. Obama during a rally in Nevada that he was familiar with CESJ and its work. As president, however, Mr. Obama seems to have committed himself to turning down the potholed Keynesian dead end with a bridge out rather than travel the Just Third Way.

If you would like to send copies of Capital Homesteading for Every Citizen to your own legislators and representatives, individual copies can be purchased through Amazon and Barnes and Noble. The book is also available on Amazon Canada and Amazon United Kingdom.

If you are in the continental United States (that is, the "48 contiguous states"), you can purchase quantities of ten (10) or more copies at the wholesale price of $14.00 per copy, plus $1.50 per copy shipping direct from us, sending payment in advance with your name and street address (NOT a P. O. Box; UPS doesn't deliver to P. O. Boxes) to:

CESJ
P. O. Box 40711
Washington, DC 20016

For 25 or more copies, or if you are in Alaska, Hawaii, Canada, or Mexico, send an e-mail to thirdway [at] cesj [dot] org before placing an order so we can calculate the shipping and let you know in advance the total amount of the bill. People generally get their books within ten business days of when we receive an order with payment.

If you're in Ireland or the U.K., we have a contract with a printer in the Midlands, and should be able to arrange for direct bulk sales; let us know your needs.

Mr. Cowen should be applauded for his efforts to balance the Irish budget. It's now up to us to let him know there's help available — and to help him set a good example to other world leaders.

Stimulus, Part II: An Alternative to Keynesian Economics

In the previous posting in this series we learned that a Keynesian stimulus package can only make matters worse. This is because a Keynesian program is founded on demonstrably false assumptions that contradict basic common sense, as well as on self-defeating monetary and fiscal policy that, in essence, operates on the fixed belief that you can get out of a hole by digging yourself in deeper.

The pivotal problem with Keynesian economics, however, is an article of dogmatic faith in that belief system. That is Keynes' — unproved and unprovable — opinion that it is impossible to create money through the extension of bank credit for capital formation (investment). It is, however, absolutely necessary to create money through the extension of bank credit for government and personal debt for government spending and consumption. Keynes' belief is the basis for his rejection of "Say's Law of Markets" and the "Real Bills" doctrine, both of which flatly contradict Keynes' dogmas.

Say's Law of Markets, named for a French political economist Jean-Baptiste Say (who didn't actually develop the law, but expressed it best) is based on the observation that production equals income. That is, whenever anyone produces something, whether for sale, for trade, or for personal use, that production results in an increase in wealth. The production is "income," even if the producer never makes a sale or exchange, but consumes all of his or her own produce him- or herself.

The operation of Say's Law is easier to see when people produce for exchange, thereby taking advantage of specialization, comparative advantage, and differences in individual, local, and national skills and resources. The essence of the law, however (that production equals income), remains the same, whether an individual produces only for his or her own consumption, or produces nothing for personal consumption, preferring to trade with others for whatever he or she wants or needs. As Say expressed it in a letter to Thomas Malthus (who, like Keynes, rejected Say's Law),

To a proprietor of a mine, the silver money is a produce with which he buys what he has occasion for. To all those through whose hands this silver afterwards passes, it is only the price of the produce which they themselves have raised by means of their property in land, their capitals, or their industry. In selling them they in the first place exchange them for money, and afterwards they exchange the money for articles of consumption. It is therefore really and absolutely with their produce that they make their purchases: therefore it is impossible for them to purchase any articles whatever, to a greater amount than those they have produced, either by themselves or through the means of their capital or their land.

From these premises I have drawn a conclusion which appears to me evident, but the consequences of which appear to have alarmed you. I had said — As no one can purchase the produce of another except with his own produce, as the amount for which we can buy is equal to that which we can produce, the more we can produce the more we can purchase. From whence proceeds this other conclusion, which you refuse to admit — That if certain commodities do not sell, it is because others are not produced, and that it is the raising produce alone which opens a market for the sale of produce. (Letters to Malthus, 1821, p. 2)

If, as Say explains, production equals income, and we don't really make our purchases with this thing called "money," but with what we produce, then the Keynesian belief that you can create money at will for consumption without first producing something is stark, raving economic insanity — as well as being so colossally dishonest as to defy the imagination. Assuming that we actually make our purchases with our own productions, when someone issues money for consumption without producing something, the issuer is stealing from whoever is stupid enough to be productive.

Issuing money without first producing is a way of trying to get something for nothing, of creating a claim on what others produce without having to produce anything yourself. Nobody in his or her right mind, absent some form of coercion (usually an overseer with a whip) is going to work to produce goods and services, whether by means of labor or capital, just so somebody else can take it away.