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.

Update: Iceland's Financial Crisis

Jóhanna Sigurðardóttir, Iceland's new prime minister, is ostensibly taking quick action on the financial crisis, although at this point she appears to have fallen into the trap that engulfs virtually every other leader in the world, of locking the barn after the horse has been stolen. She is demanding the resignation of the heads of the three largest banks in Iceland — who appear to be guilty only of following today's standard Keynesian economic assumptions during the economic boom of the recent past.

What Ms. Sigurðardóttir needs to do is not figure out how to implement bad policies better, but to study and implement better policies. She needs to lead the way in guiding the Althing — Iceland's legislature (reputedly the oldest in Europe) — toward an idea even older than they are: that each and every man, woman, and child should have the opportunity to be economically free and independent through democratic access to the means of acquiring and possessing the means of production.

Such a program is Capital Homesteading — and the reason why, earlier today, we took the trouble to send every member of the Althing, including Ms. Sigurðardóttir, a letter explaining Capital Homesteading briefly. We also sent a press release to the Icelandic media for which we could locate e-mail addresses. (If you're a member of the press in Iceland and did not receive a copy of the release, or have an interest in news relating to Iceland, send us a request for the press release at thirdway [at] cesj [dot] org.)

We believe that Scandinavia's democratic traditions, often sidetracked into socialism, would provide fertile ground for a concept such as Capital Homesteading. Immigrants from Scandinavia, especially Sweden and Norway, were prominent among those taking advantage of Abraham Lincoln's 1862 land Homestead Act. It's now time for Iceland to lead the way toward a new future for everyone by being the first to enact a Capital Homestead Act.

Stimulus, Part III: The "Real Bills" Doctrine

As we saw in the previous posting in this series, Say's Law of Markets contradicts Keynes' belief that it is economically sound to create money without first producing something. Say's Law, however, is only half the story. The other half is something called the "Real Bills" doctrine, which Keynesians have been careful to declare has been "discredited" without giving any reason other than it contradicts Keynesian dogma.

The "Real Bills" doctrine assumes the validity of Say's Law. Thus, if we produce something, we have generated income and increased wealth, that is, we have created something that has value. We can 1) consume the wealth ourselves, 2) exchange some or all of our wealth directly for whatever others have in the way of wealth that we want or need to have instead (barter), 3) go to a bank or other financial institution and turn our wealth into "money," or generalized purchasing power, by giving the banker a lien on our wealth, or 4) sell the wealth outright for money.

When we exchange our wealth for money (#4), the transaction ends there. We take what is now our money, and do with it as we please, while whomever we sold our wealth disposes of what is now his or her wealth as he or she pleases. If, however, we give a bank or other financial institution a lien on our wealth (#3), we have to pay it back, plus a fee for the service that the bank provided in "monetizing" our wealth (generalizing our purchasing power by substituting the bank's promise for our own), or the bank has the right to take possession of that portion of our wealth on which it has a lien.

If the wealth we have monetized in this fashion consists of inventories of existing goods we have produced, there is usually no problem. We can sell our inventory of goods, and make a profit out of which we redeem the lien on our goods, pay the service fee to the bank, and provide ourselves with income. This is possible because no bank or other financial institution will ordinarily create money to exchange for more than the wealth is worth, and usually much less, thereby ensuring that the lien will be redeemed — banks don't want your inventory, they want the service fee they charge for monetizing your inventory. Keynesians don't (usually) have a problem with this process. The wealth, "savings" or unconsumed wealth, clearly exists, and can thus be exchanged, traded, or confiscated by the State for redistribution among the unproductive. Keynes' assumption, that saving must precede investment, appears to hold true.

The problem is that, carried out in a rational manner, the above process contradicts Keynes. Money created by a bank by taking a lien on existing inventory goes to pay for the costs of producing the inventory (including the service fee to the bank), and provide a just profit to the producer, out of which he or she meets his or her consumption needs. Only a small proportion of the money created is available for new investment, whether new productive machinery or additional inventory, although (depending on the amount of profit and the wants and needs of the producer) a large proportion of the profit might be diverted into new capital formation instead of being consumed. This is the "matching principle" in accounting, and is the basis for accrual accounting. Accrual accounting assumes that revenue generated by the sale of a good or service goes first to meet the costs of producing that good or service, then provide a profit — income, or an increase in wealth — for the producer. The profit, the amount by which revenue exceeds costs, not the total revenue, represents the increase in wealth that can either be consumed or saved.

Washington Post: "Economic Signs Turn From Grim To Worse"

In the musical 1776, the John Adams character spends the first few minutes of the show loudly singing about how Congress should begin discussing his proposal on independence for the American colonies. The other characters sing back (even more loudly), telling John Adams to sit down and be quiet so that they can get back to swatting flies and moaning and groaning about how bad things are — the important issues in Philadelphia in late June of 1776.

As readers of this blog and participants in the binary economics discussion group are aware, the Global Justice Movement in general and CESJ in particular have been working very hard to try and bring Capital Homesteading to the attention of the powers-that-be. We've had some success, but by and large have not yet gained the ear of anyone in a position to do anything. Instead, we are treated to headlines like those in today's Washington Post that inform us on page one of "Another Wave of Evidence Of a Deepening Recession."

The time may be ripe to get politicians to listen to proposals on Capital Homesteading . . . if they can be persuaded that, far from being hopeless, the current crisis is the best opportunity in a long time to implement something for which the time is always ripe: the Just Third Way. Write to your legislator, president, prime minister, prince, or pooh-bah, and let him or her know that there is an alternative available to what even the Post is now describing as a grim situation. Otherwise, we may soon become accustomed in our daily newspapers to reading such heartening opening sentences as, "On the eve of what is expected to be the clearest evidence yet of the nation's deepening recession, bad news rolled in from across the economy and the world."

As Father William Ferree pointed out in his short pamphlet, Introduction to Social Justice, there is no excuse for this sort of thing — nor are we helpless. After reminding us that we each have a personal responsibility to work together to change things, he concluded,

No problem can ever be too big, too complex, too widespread, too vast for Social Justice to tackle. There is in the field of Social Justice no such thing as an impossible situation. . . . The completed doctrine of Social Justice places in our hands instruments of such power as to be inconceivable to former generations. . . . The power that we have now to change any institution of life, the grip that we have on the social order as a whole, was always there but we did not know it and we did not know how to use it.

Now we know.

That is the difference.

News from the Network, Vol. 2, No. 5

Focus on President Obama's near-trillion dollar "stimulus" package seems to be diverting people's attention away from more effective solutions to the financial crisis, such as Capital Homesteading. We've begun posting a series on why the stimulus package will, in all likelihood, not have the intended effect, but have also managed to carry out some "off-the-blog" activities as well.

• On Monday, January 26, Michael D. Greaney, CESJ's Director of Research, returned from a short trip to Lancaster, Pennsylvania. The economic situation in Lancaster, in common with the rest of the country outside the Washington, DC Beltway, is dire. People inside the Beltway may have it hard, but the federal government (the largest employer in the area) has not yet started laying off people, so those who work for the government or whose jobs depend in some way on the government are being shielded to a certain extent. This may explain the otherwise inexplicable support for a "stimulus" package that combines a great deal of political pork with spending that is either unproductive or concentrates power in the hands of the State. Yesterday morning's comment by an economist on television that the way to get out of the current financial crisis is for the government to spend more, while it makes perfect sense within the unique economy inside the Beltway, does nothing to bolster confidence of people in the real world.

• On Tuesday, CESJ sent a brief letter to Father Cassian Yuhaus, Rector of the Shrine of St. Ann's Basilica in Scranton, Pennsylvania, a member of the CESJ Board of Counselors, to ask for his assistance in arranging a meeting with His Holiness, Pope Benedict XVI, both to follow up on a series of meetings with the late Pope John Paul II, and to present the Holy Father with the Abraham Federation as a possible solution to the increased violence in the Holy Land.

• Also on Tuesday CESJ sent a letter to His Excellency, the Hon. Hjálmar W. Hannesson, Ph.D., Ambassador of Iceland, to acquaint him with the possibilities offered by the Just Third Way to save the Icelandic economy from what appears from news reports to be a virtual shambles. His Excellency was educated in Ireland (University College, Dublin), so we mentioned to him the fact that a number of Irish politicians are beginning to give serious consideration to CESJ's Capital Homesteading proposals.

• On Wednesday . . . we shoveled snow and chipped ice. More importantly, we also began the series of blog postings on why we believe that Mr. Obama's stimulus package is headed in exactly the wrong direction. We will probably not post the entries on successive days, but we do expect to complete the series within two weeks. We urge that you follow the series carefully, and if you think it worthwhile, you might want to forward links to your Representative in the Congress and both your Senators, as well as the governor of your state and your representatives in the state legislature. If you are not a U.S. citizen, consider sending a link or two to your own government (especially if you happen to live in Iceland or Ireland), along with links to the CESJ web site together with a short explanation that the material on the web site might suggest some possibilities for economic recovery that do not rely on 1) deficit spending or 2) foreign investment.

• Sales for Capital Homesteading for Every Citizen, listed on Amazon and Barnes and Noble, as well as In Defense of Human Dignity, ditto, ditto, have been encouraging, but could be better. We remind you that these books can be very effective ways to acquaint friends, neighbors, business associates, and (especially) religious and political leaders with possibilities for economic recovery that are not rooted in bankrupt (and bankrupting) Keynesian economics. You don't have to be a CESJ member or a licensed retailer to get the wholesale price — $4.00 off the retail price, plus $1.50 per copy for shipping within the continental United States — when you purchase 10 or more copies directly from CESJ in a single order sent to the same address (and they don't have to all be the same title, just as long as you order a minimum of ten copies total). William Cobbett's The Emigrant's Guide is also available from Amazon and Barnes and Noble, and can be purchased in wholesale lots from CESJ on the same terms as Capital Homesteading for Every Citizen and In Defense of Human Dignity, and can be "mixed and matched" with those two titles. (Sorry — Curing World Poverty (1994) was put out by a different publisher in conjunction with CESJ, and isn't included in this offer because it was printed by a different company than we use now.)

• As of this morning, we have had visitors from 18 different countries and 39 states and provinces in the United States and Canada to this blog over the past two months. Over the same period we have experienced over 100% increase in total readership, according to the statistics counter of "Google Analytics." Visitors from the Republic of Ireland (Éire) have increased 800% according to Google, with the most popular "key word" search being "solution to economic crisis in Ireland," and "is Irish government Keynesian." We received a comment from a lady in Ireland a few weeks ago who was pleasantly surprised that some of the Irish politicians to whom we sent brief descriptions of the Just Third Way and Capital Homesteading responded in a positive manner, notably Mr. Charlie O'Connor, of the Dublin South West constituency, who gives indications of serious interest in Capital Homesteading. Evidently, if Irish politicians want an "easy" way to be both popular and effective, Capital Homesteading offers some definite possibilities. Visitors from California (according to last night's news, the "eighth largest economy in the world") have increased nearly 150%, so perhaps Governor Schwarzenegger and members of the state legislature in Sacramento will soon be receiving some letters from concerned residents of the Golden State. (That's a hint, by the way.) In the U.S., more people visit from New York (both city and state) than any other region. Our most popular postings continue to be those dealing with the problems associated with Keynesian economics and the seriously flawed solutions that are being implemented to solve the world's economic and financial problems, although our most popular posting by far is "Inauguration Means Beginning."

Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.

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.

Stimulus, Part I: Why Obama's Stimulus Package Won't Work

Mr. Obama is indeed correct that the country is at a "perilous moment." The only problem is that, sincere as we assume the president to be, his proposed economic stimulus package will only increase the peril of the moment, to say nothing of wrecking the future.

As I understand it, the whole idea behind Mr. Obama's proposed stimulus package (as of this writing not yet enacted into law) is that the federal government — meaning the taxpayer — will 1) provide funds to help unsuccessful gamblers and speculators recover the money they lost, so they can gamble and speculate again in the vague hope that their doing so will result in some kind of investment that creates jobs, thereby increasing effective demand, 2) provide funds to consumers who presently lack sufficient income to provide sufficient effective demand to keep the economy going, increasing demand and creating jobs, and 3) increase government spending on public works and infrastructure, thereby creating jobs and increasing effective demand.

In the Keynesian universe, the purpose of production is not consumption, but to provide jobs that will generate effective demand. Thus, the basic assumptions underlying Mr. Obama's Keynesian — one might say ultra-Keynesian — approach to economic recovery are 1) increased demand for consumer goods follows increases in capital investment, 2) production for consumption is not necessary, 3) capital investment can only take place by first cutting consumption, then investing, and 4) production does not equal income.

In a Keynesian universe, investors can only form capital when 1) effective demand has been reduced by saving, 2) there is no need for new capital formation other than to create jobs needed to 3) provide wage income to purchase existing goods and services, thereby 4) replacing the funds previously diverted to investment.

Within the Keynesian framework, then, all that should be necessary to stimulate the economy is to 1) create money to replace what was previously diverted to savings, thereby 2) increasing effective demand, 3) clearing existing excess production, and 4) creating jobs to provide income to increase effective demand.

The flaws in the Keynesian program should be obvious. 1) If consumers are simply lent money to increase effective demand, they must at some future time decrease effective demand by the same amount in order to repay the loan, plus reduce future effective demand further by whatever interest rate, risk premium, and service fee is added to the original loan principal. Thus, allowing people to borrow money to finance consumption is worse than self-defeating. It is (not to put too fine a point on it) economic insanity. Because the consumer must pay back more than he or she borrowed, future effective demand is reduced at a greater rate than it was originally increased by the extension of consumer credit. The problem of excess production due to decreased effective demand is worse, and more people lose their jobs in consequence.

2) If a business borrows money for capital formation that results in job creation when there is insufficient effective demand in the economy to justify the investment (a given in Keynesian economics due to Keynes' fixed belief that consumption must be reduced in order to finance capital formation), the business will require a taxpayer subsidy in order to make a profit and stay in business.

a) If the subsidy is provided out of tax collections, effective demand is further reduced, and the business will require increased subsidies to make up for the reduction in effective demand.

b) If the State provides the subsidy by monetizing its deficit (i.e., printing money backed by debt to be repaid by future taxpayers), the resulting inflation will decrease effective demand as the price level increases, again making additional subsidies necessary (whether you call them subsidies, price supports, bailouts, or stimulus packages) in order to make a profit and stay in business.

Either method results in a vicious circle of inflation to overproduction, overproduction to unemployment, unemployment to increased government spending, and increased government spending back to inflation. This is the trap we are in now, with Mr. Obama's stimulus package virtually custom designed to add gasoline to the fire, making the problem infinitely worse.

A New Icelandic Saga

When we hear of economic breakdown, political unrest, and government collapse, most people don't think of Iceland. The true scope of the current global financial crisis, however, can probably be judged by the fact that Iceland's coalition government collapsed yesterday following an almost unheard-of groundswell of public opposition. The country has been in a state of crisis since this past October, when widespread bank failures resulted from a tremendous load of unserviceable debt, according to an Associated Press report yesterday ("Iceland's government topples amid financial mess" 01/27/09) So far the protests have been mild judging by what we've seen in the rest of the world, limited to banging on pots and pans outside the parliament building in the capital of Reykjavik, and throwing paint and eggs at the Prime Minister's car.

As described in the article, it seems evident that Iceland's troubles can be traced to a heavy reliance on Keynesian economics, coupled with massive borrowing from foreign sources when a strong Krona encouraged many Icelanders to deal in currency arbitrage for consumer purchases. An appreciating domestic currency would allow consumers and other debtors to purchase the loaned currency for repayment at a much cheaper price, essentially engaging in short selling in currency speculation.

A problem, however, results when the domestic currency decreases in value relative to the currency that was borrowed, making it more expensive to purchase the foreign currency with the domestic currency. What seemed like a good idea at the time then becomes a disaster, both individually and nationally. As a result, the country is not only burdened with bailout loans from the International Monetary Fund and a financial system in ruins after the banking collapse, ordinary consumers are loaded with debts that increase dramatically as the Krona declines, at the same time that unemployment and inflation are both rising rapidly.

At this point, the only real help for the situation is implementation of a Capital Homesteading program at the earliest possible date. To that end, CESJ has sent a letter to His Excellency, Dr. Hjálmar W. Hannesson, Ambassador of Iceland in Washington, DC, asking for a meeting with CESJ president Norman Kurland, and briefly describing the potential benefits for Iceland in adopting Capital Homesteading.

A Blueprint for Change

Norman Kurland, president of CESJ sent the following letter in response to a comment from a reader that, "The leading governments of the world in their efforts to address the debt-fueled financial crisis are compounding rather than resolving the problem. This is because they have little understanding — or choose to turn a blind eye — to the systemic causes of the developing catastrophe. In brief, they are addressing the wrong issues; putting funding into the wrong hands; and vainly hoping to jump-start the economy by encouraging a spending spree which could shortly be disastrous to the better interests of ordinary people."

I totally agree with your analysis of the current global financial crisis. It's one of the best presentations I seen written to describe the problems of the current financial system, current institutions of finance and defective government policies in the US, the UK and all governments in the world. Some would attribute the problem to a tiny conspiratorial elite intent on dominating global civilization. There may indeed be such an elite.

But, as Bucky Fuller wisely reminded serious people: "We are called to be architects of the future, not its victims." Since I believe you and I see the obvious flaws in the system, its institutions and its laws — and these "social artifacts" were created by humans within paradigms of the past — I interpret Bucky's challenge as one that reminds serious people that anything — including outdated and flawed paradigms perpetuated and taught by followers of "some defunct economic economist" — that has been created by humans can be re-created or restructured by humans.

Of course the quality of any restructuring of the global economic order and its national and global institutions and laws will depend on the soundness of our vision for change, the logic of the paradigm shaping our strategies for change, and the clarity of the principles of social and economic justice we apply for implementing the new blueprint for change.

If we can agree so far, I think we can further agree that we will not find that new vision and paradigm or any sound principles of economic and social justice taught within the "soft sciences" of academia, nor in any leading university or think-tank of which I am aware. Hence, architects for change must be found outside of academia and they need to unify around a new blueprint for change that can overcome the inertia among the academic elite and in policy makers and leaders whose minds have been shaped by academics clinging to paradigms threatening the future of global civilization.

We need a new paradigm, a new blueprint or vision of the future that can be implemented in any country, and a new strategy to unite other architects for change to overcome the inertia of the present system.

Such a new paradigm exists and it can be found in the seminal writings of Louis Kelso and Mortimer Adler (for free downloads click on www.kelsoinstitute.org), the Ashford-Shakespeare book /Binary Economics: The New Paradigm /and in my paper and Ashford's papers published in /The Journal of Socio-Economics/. (My paper "A New Look at Prices and Money" has been republished in the Shakespeare-Challen book as well as in our book /Capital Homesteading for Every Citizen/ and its logic has never been challenged, at least in the 8 years since it was first published.)

A new and comprehensive blueprint for policy and legislative change that can be adopted by any country is contained in the /Capital Homesteading /book, which can be downloaded free at http://www.cesj.org/homestead/summary-cha.htm.

A movement united to advance this new Kelsonian paradigm and new blueprint has already produced some success stories and prototypes that are already being implemented in various countries. (See http://www.cesj.org/about/CESJ-Accomplishments.pdf and various projects described at www.cesj.org, www.globaljusticemovement.org and www.theamericanmuslim.org.) A number of people you sent your paper to are working on new initiatives in East St. Louis, IL, in Bangladesh, in tackling the sub-prime mortgage crisis on Capitol Hill, and in getting a "foot in the door" to top policymakers in the Obama Administration. And several marketing/media professionals have volunteered to spearhead a CESJ Marketing/Media campaign to bring our Capital Homesteading "solutions" to media and public attention.

Thank you for your excellent comment. I hope that my response is useful to you and others who have not yet joined our growing band of "architects for change." Our door remains open to those who share our vision, paradigm, principles of social and economic justice, strategy and blueprint for change.

News from the Network, Vol. 2, No. 4

The Big News this week was, of course, the inauguration of Barack Obama as the 44th president of the United States. While many people seemed to think that the inauguration itself was the culmination of everything, the fact remains that Mr. Obama has some very big problems to deal with, not the least of which is overcoming the fixed belief in the Keynesian free lunch, which results in monetary and fiscal policy that has the goal of trying to get something for nothing. Consistent with our continuing efforts to bring the Just Third Way to the attention of the powers-that-be, here is a listing of what else happened during the week.

• On Monday, January 19, a group was formed to "market" the Just Third Way. Enthusiastic participation is already in evidence, with proposals and even draft marketing materials in preparation. The two coordinators are Brent Ritzel and Steve Neskis.

• Evidently due to the posting on President Obama's failure to mention justice in his inauguration speech, this blog received more hits on Tuesday than on any previous day since its inception, and "Inauguration Means Beginning" became firmly entrenched in first place as the most popular posting.

• On Wednesday, in response to an op-ed piece by Juan Williams in the Wall Street Journal ("Judge Obama on Performance Alone" 01/21/09, A17), Norman Kurland put in a telephone call to Mr. Williams, with whom he has interacted before, most notably with the receipt of a handwritten note from Mr. Williams when he was with the Washington Post on receipt of information about the Just Third Way. As Mr. Williams stated, "This material is critically important to broadening the nation's appeal to the non-rich, especially disadvantaged minorities. I'm not an economist but I think you are on to a powerful concept. All the best, Juan Williams."

• Thursday night Norman Kurland met with a group of students from the Ave Maria School of Law who were in town for the annual March for Life. While CESJ is not a Pro Life organization, it has a firm commitment to all principles of the natural law, especially our inalienable rights to life, liberty, and the means to acquire and possess private property in the means of production, as well as pursue happiness and safety (acquire and develop virtue). Norman Kurland reported that the students expressed a great deal of enthusiasm for the idea of an economic agenda that would support the Pro Life cause and which is based on these fundamental natural rights. In contrast to the failure to acknowledge justice during the president's inauguration speech, the Ave Maria law students gave evidence of a firm commitment to justice, both in principle and in practice.

• As of this morning, we have had visitors from 17 different countries and 37 states and provinces in the United States and Canada to this blog over the past two months. Over the same period we have had nearly a 30% increase in readership. Since our most popular postings have to do with the problems associated with Keynesian economics and the seriously flawed solutions that are being implemented to solve the world's economic and financial problems, we might reasonably take this as a sign that dissatisfaction with the Keynesian free lunch program is beginning to spread, and people are becoming suspicious of the number of policymakers and prime movers who are revealed as slaves to Keynesahol, a virtual flood of Keynesaholics, staggering from one Keynesian fix to another in a hopeless quest for just the right stimulus to carry them through to the next election.

Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue."

Who Owns the Federal Reserve?

Aside from the fact few people seem to understand just what it's supposed to do, nobody seems to know exactly who "owns" the Federal Reserve System. As a central bank, it's supposed to be separate from the government to prevent the State from using the Federal Reserve's money creation powers to finance government deficits. In theory, the Federal Reserve is owned by its member banks . . . who have absolutely no control over the institution to which they presumably hold legal title. (Ownership is control in all codes of law, as Louis Kelso pointed out in his 1957 article in the American Bar Association Journal, "Karl Marx the Almost Capitalist.")

To make matters worse, the Federal Reserve was established in conformity with something called the "Real Bills doctrine," which (to oversimplify) means that money can be created as needed if all new money is used only to finance capital investment that pays for itself in a reasonable period of time, and that this will not cause inflation. Unfortunately, the Keynesian economists currently in charge of the Federal Reserve as well as those charged with setting monetary and fiscal policy for the United States and much of the rest of the world reject the Real Bills doctrine. (They don't really give reasons, they just say it has been "discredited.")

The bottom line is the Federal Reserve is a tool designed specifically to operate in accordance with the Real Bills doctrine . . . but is being used as if the Real Bills doctrine doesn't work. It's like using a saw to try and drive nails. Not only will the nail not go into the wood, you'll ruin the nail, the wood, the saw, and probably inflict serious bodily harm on yourself — just as we see the component parts of our economic system being ruined today through misuse of our financial tools.

Because of this lack of clarity as to the purpose of the Federal Reserve, who owns it, who controls it, what it's supposed to do, and so on, many concerned people believe that the Federal Reserve should either be abolished, or put under the direct control of the Treasury. This would probably be a mistake.

First, if we are ever to achieve a stable, non-inflationary currency that expands and contracts with the needs of the private sector (not government), we have to restore the Real Bills doctrine. (We won't go into why Keynes was wrong in rejecting it, but the proof of Keynes' fallacy can be found in Dr. Harold G. Moulton's 1935 classic monograph, The Formation of Capital.)

Second, we need to ensure that every American citizen and legal resident has an equal opportunity to gain access to the money creation powers of the Federal Reserve. We don't mean that the Federal Reserve should just print money or create demand deposits and hand out the cash. No, we mean that anyone who can come up with a financially sound, self-liquidating proposal to purchase capital should have the same right to borrow the same amount as everyone else in the country. Money should only be created in response to actual, feasible, financially sound capital projects, not just brought into being in the vague hope that "if you create it, the investments will come."

Finally, here's a truly radical idea. Since the Federal Reserve is, in a very real sense a natural resource, part of the common heritage of America, take the pseudo ownership of the Federal Reserve away from the commercial banks, and vest it in each and every citizen and legal resident of the United States by issuing every one who meets the minimum qualification of citizenship or legal residence and who is a living, natural person a single, fully voting, fully participating, non-transferable share of stock in the Federal Reserve System. Considering the fact that virtually everyone has a Social Security Account or is kept track of in one way or another, keeping the records for such an ownership structure shouldn't be too onerous, especially since everyone would be absolutely equal in that respect, with one share per person, and one dividend and one vote per share.

It's something to think about, at least.

Paradigmatic Revolution: Is President Obama Ready to Talk the Walk?

by Dr. Robert D. Crane, Guest Blogger

We have now had two presidents in the past generation who had difficulty with what our 41st president called "this vision thing," which, in my opinion, was totally beyond his capacity to comprehend. We have had three presidents, Carter, Reagan, and Clinton, who had some holistic direction other than pragmatic compromise or might makes right.

What is No 44's vision? Is it the same as that of America's founders as envisioned in the Preamble to the American Constitution? Our founding document reads: "We the People of the United States, in order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common Defense, promote the General Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."

The founding men and woman of America conceived justice to be the source of order, prosperity, and freedom, and listed "freedom" last as the product of the first four of America's founding purposes.

President Obama did not use the term "justice" in his speech. His eloquent and determined speech was reminiscent of Churchill's speech promising "blood, sweat, and tears," but nowhere did it portray any paradigm of policy other than freedom. There was no mention of justice as the source of security, prosperity, and freedom, as enshrined in the Preamble to the American Constitution, which can serve as the American code of human responsibilities and rights, similar to the maqasid al shari'ah in classical Islamic thought and to similar scriptural interpretations in every world religion.

Even a self-serving concept of justice, however, is better than former President Bush's use of "justice" only as a synonym for retribution, as in "Saddam Hussein will experience American justice."

Does our new president's inaugural address mean only "more of the same" but with greater determination? Its real meaning will emerge in action. He does not talk the walk of justice, but perhaps he will walk without talking. This may be what Secretary Hillary Clinton in her initial confirmation hearings baptized as "smart power," because neither "soft power" nor "hard power" are politically correct action-words any more. As optimistic voters for Barack Obama, perhaps we need merely pray that the new Administration, now only a few hours old, needs to pioneer both good policy and more transparency.

Perhaps one-time presidential candidate Mike Gravel (accent on the second syllable), former U.S. Senator from Alaska before the Republicans took over the state, is right when he says we need a revolution from below, which is what those who voted for Barack Obama were trying to launch, not from above. Senator Gravel's "Philadelphia Two Initiative," also known as the "National Initiative for Democracy," called for Direct Democracy. He pursued this through his Democracy Foundation, which advocated direct action through a constitutional amendment providing for voter-initiated federal legislation similar to state ballot initiatives in order to facilitate political reform from the bottom up. He regarded this as key to a fundamental reform of the entire system of money and credit designed to expand access to universal individual ownership of capital or real, productive wealth, which, in turn, is the key to real political self-determination and freedom both at home and abroad.

This, of course, assumes what many might call a spiritual transformation along the lines of Rabbi Michael Lerner's call for a "new bottom line," which might take much longer than similar reform from the top down by lobbying within the existing system of concentrated economic and political power.

Senator Gravel and his economic mentor, Norman Kurland, president of the Center for Economic and Social Justice, have differed on whether political democracy or economic democracy comes first, a question some might regard as another form of the chicken-or-egg conundrum. Norman Kurland, co-founder of the American Revolutionary Party, believes that political democracy follows economic democracy, while Senator Gravel reverses the order. Perhaps they are "prophets without honor in their own country," and are both right.

The Obama Administration may offer the best and only chance to fulfill the American dream of peace, prosperity, and freedom through compassionate justice. If President Obama starts both talking and walking, America may indeed succeed, God willing, in renewing its global leadership as "the last, best hope for mankind."

Mea Culpa: Correction of Yesterday's Posting

I admit my hearing is sometimes not the best. To make matters worse, I listened to President Obama's speech yesterday while taking notes and not watching the television. Consequently, the word I heard as "justice" was actually, according to the official transcript of the speech, "justness."

This does not change the substance of yesterday's commentary and, in fact, strengthens it. Norman Kurland, president of CESJ, made an informal bet that Mr. Obama would not use the word "justice." That now shown to be the case, I would like to restate the first sentence of the second paragraph to read as follows:

Unfortunately, President Obama did not mention "justice" at all, only coming close when he made reference to "the justness of our cause" in making the United States a world leader once again through the use of alliances rather than force of arms.

"Inauguration" Means "Beginning"

You'd never know it from all the hype that has been flooding the media, characterizing the inauguration of Barack Obama as president of the United States as the virtual culmination of civilization, western and eastern, but an "inauguration" isn't the end of anything, much less the solution to some rather serious problems that Mr. Obama has given no sign of preparing to address effectively. The solution to the serious problems that beset us today is not found simply in a determined hope and a firm commitment to change, but through empowerment of people, not government, through the pursuit of justice, both individual and social.

Unfortunately, President Obama's only mention of "justice" was in a reference to "the justice of our cause" in making the United States a world leader once again through the use of alliances rather than force of arms. The main emphasis seemed to be on the "spirit of service," stressing the obligation that each of us has to work for the "common welfare." This is all very well, and a clear sign of Mr. Obama's goodwill and intentions, but it is not enough, and could even be misleading.

The implication is that duties, not rights, provide access to the common good; that we participate in the common welfare (not common good) by giving to others as generous benefactors. Not mentioned was the possibility of reforming our social structures — our institutions — so that we are empowered to meet others on equal ground as co-participants in just exchanges. Justice would mean that both sides exercise rights and imposing the correlative duties in balanced transactions to which all have the right of access, whether as producers through ownership of both labor and capital, or as consumers receiving an adequate and secure income from the sale of labor and profits from ownership.

The benediction by the Reverend James Lowery was the most positive statement during the entire ceremony, making strong comments in support of the pursuit of justice. Rev. Lowery seems to have made the only mention of the importance of ownership of the means of production with his Biblical reference to each man sitting under his own vine and fig tree.

Once the euphoria wears off, President Obama has the task of proving that he is no mere superficial agent of change for the sake of change, rejecting all that has gone before simply because it preceded his coming. He cannot fall into the trap of assuming (as so many of his supporters seemed to during the campaign) that it is the man, not the plan that is important, and his taking of office is itself the victory. No, a genuine, lasting, and (above all) improving change cannot be effected simply by sheer determination to do something, particularly increasingly intense application of Keynesian remedies to economic and financial problems caused by those same remedies in the first place.

The only thing that will make President Obama anything other than a hollow shell of meaningless rhetoric and the slave of a defunct economist is to empower people through the pursuit of justice. A good place to start would be the immediate formation of a committee to study the earliest possible implementation of a full-scale Capital Homesteading program, designed to open up full access to direct ownership of the means of production by each and every American.

Without true empowerment through democratic access to the means of acquiring and possessing an adequate stake of productive assets, all the talk of "change" will remain just that: talk.

Martin Luther King, Jr. and Economic Justice

This morning Mr. Chris O'Connor, Financial Secretary/Treasurer of the Colonel John Fitzgerald Division of the Ancient Order of Hibernians in Arlington, Virginia sent us a link to an article by Deepti Hajela, past president of the South Asian Journalists Association, which was published by the Associated Press. As there is a link included in this posting to the article, you can read it for yourself. You might also want to use the article as a template for similar letters to other journalists, or to use to create your own, more personalized e-mail to Ms. Hajela. Beware: I have not verified that the e-mail address is correct. As of a few moments ago, when I last checked, it had not been bounced back, but that's all I can say.

Deepti Hajela
Associated Press
sajadeepti@yahoo.com

Dear Ms. Hajela:

Your article issued by the Associated Press yesterday, "MLK's dream also included economic justice," raises justifiable hope that some critical issues will be addressed in a meaningful and effective manner in the new administration. You might find it useful and informative to make contact with Dr. Norman G. Kurland, president of the Center for Economic and Social Justice ("CESJ"), www.cesj.org in Arlington, Virginia, to gain some insights on the principles of economic justice and how the new administration could implement such innovative proposals as "Capital Homesteading," "Homeowners' Equity Corporation," and the "Community Investment Corporation."

Dr. Kurland was active in the civil rights movement in the early 1960s, working in Mississippi and interacting significantly with such figures as Stokely Carmichael and Medgar Evers. He later joined with Louis Kelso and was instrumental in persuading Senator Russell Long to champion the Employee Stock Ownership Plan, or ESOP, which has been responsible for delivering a measure of economic justice through ownership of the means of production to more than 10 million American workers. Dr. Kurland was later Deputy Chairman of the Presidential Task Force on Project Economic Justice under President Reagan. A short biography of Dr. Kurland can be found here.

You can reach Dr. Kurland via information that can be found on the CESJ web site. Dr. Kurland recently (January 6) had a telephone conference with Mr. David Walker, former Comptroller General of the United States who is now with the Peter G. Peterson Foundation, regarding the effect of the current financial and debt crisis on the prospects for economic justice. I am sending Dr. Kurland a cc. of this e-mail so that he will expect your call.

News from the Network, Vol. 2, No. 3

Just as the middle of the country (the United States) seems to be locked in a deep-freeze with respect to the temperature, things show signs of thawing in regards to political and economic mindsets. Inside the Washington, DC Beltway and along either coast people are caught up in the enthusiasm for "change" (which, when examined closely, bears a very close resemblance to what preceded it), but in the Midwest, largely forgotten and ignored now that its votes are cast, some signs of genuine change for the sake of improvement (as opposed to for the sake of change itself) are surfacing.

• Mayor Alvin Parks of East St. Louis, Illinois, has obtained a tentative opportunity to speak at a conference of mayors from across the country. His topic for the five-minute slot (assuming that he isn't "bumped" by HUD-Secretary-to be Shaun Donovan) will be Capital Homesteading. Mayor Parks plans on sending a copy of our book, Capital Homesteading for Every Citizen, to Obama, as an example of change for the better, instead of just change for the sake of change.

• Mayor Parks has arranged for Norman Kurland to meet with Senator Durbin of Illinois for half an hour. Norm will present the Capital Homesteading concept to the Senator, and present him with copies of Capital Homesteading for Every Citizen. There is a possibility that Senator Durbin, like the late Senator Russell Long, will recognize the opportunity to do what's right because it is right, not because of a vaguely perceived mandate for "change." Among the legislatives reforms Norm intends to discuss with Senator Durbin, who was born and raised in East St. Louis, is the immediate need to give citizen-owned Community Investment Corporations (CICs), also called Citizen Land Cooperatives (CLCs) the same tax treatment as leveraged Employee Stock Ownership Plans (ESOPs). Mayor Parks, and 10 mayors in neighboring communities have already formed a Metro East Citizens Land Cooperative to enable their 100,000 residents to share profits from an economic redevelopment plan being developed through the Wyvetter Younge Center for Economic and Social Justice and the Advanced Renewable Energy Systems, LLC (ARES), with our help.

• On Monday of this week we had a very productive meeting with Mr. James Rogers, Director of Communications for the Jesuit Conference and president of the Colonel John Fitzgerald Division, Ancient Order of Hibernians ("AOH"), Arlington, Virginia. Issues covered involved 1) the development of a uniform social justice curriculum for grade schools, high schools, colleges, and parishes, 2) the possibility of increasing the commitment of the Ancient Order of Hibernians to social justice by working to promote the Just Third Way as the solution to the situation in Ireland (both political and economic), and 3) specific actions in the immediate future to introduce the principles of the Just Third Way to the AOH in Virginia.

• James Rogers (see above) raised the possibility of Norman Kurland giving a brief presentation at the upcoming AOH State Board meeting to be held in Woodbridge, Virginia, on January 24, 2009. James is working on presenting the idea to Mr. Patrick Naughton, AOH State President, and expects to know in the near future.

• This past week Economic Justice Media sold its first book in the United Kingdom, a copy of In Defense of Human Dignity. It shouldn't be long now until they start realizing the possibilities of Capital Homesteading and reading a little William Cobbett as a treat.

• As of this morning, we have had visitors from 15 different countries and 27 states and provinces in the United States and Canada to this blog over the past two months. The spreading dissatisfaction with Keynesian economics and the multi-trillion dollar bailouts and stimulus packages based on Keynes' unsound ideas may be responsible for the fact that of our "top ten" postings, six relate to that defunct economist and his bankrupt (and bankrupting) ideas. Of the remaining "top ten," two are the weekly news postings, one is the posting regarding our new annotated edition of William Cobbett's The Emigrant's Guide, and the remaining one, now in the number three spot (having been bumped from number one by Keynes) is Steve Roy's open letter to Tom Friedman.

Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue."

In Keynes We Trust

Over the past week, participants in the Kelso Binary Economics Discussion Forum (which you can join by going to the CESJ web site, www.cesj.org, and following instructions) have been having a little fun with the complaint circulating around the internet that the new dollar coin allegedly omitted the traditional motto, "In God We Trust." It's on the edge, where, since the advent of coin stamping machinery (as opposed to hand-hammering), it's been possible to put lettering if a coin is thick enough. Naturally, some people more concerned with form instead of substance declared that this was yet another move by the anti-American atheistic communist secular humanist et ceteras to destroy the country.

If only people got this worked up over the much more egregious matter of the misuse of the Federal Reserve System resulting from the worship of the false god Keynes. Thanks to St. Paul, it's easy to get religiously-motivated people worked up about love of money, worship of money, infatuation with money, etc., etc., etc., but not about misunderstanding of money, and its related institutions, credit and banking. Perhaps people are afraid to understand money, because (as the old saw goes) "to know me is to love me," and they want to avoid loving money at all cost . . . if you'll pardon the expression.

In any event, St. Paul didn't say anything (as far as I know) about blindly following people who screw up the financial and economic system to fit their pet theories, even when the facts prove them absolutely wrong. This is what Dr. Harold Moulton did with Keynes in 1935, in Moulton's brief monograph, The Formation of Capital, perhaps the best proof of the validity and soundness of the "Real Bills" doctrine.

Briefly, the "Real Bills" doctrine is that banks can create money as needed without inflation, if money creation is limited to financing self-liquidating capital projects. The doctrine is based on "Say's Law of Markets" (rejected by Keynes) which states that "production = income." That being the case, anything that is produced, or is reasonably expected to generate production, can be "monetized," and there will be no inflation because the supply of money and the supply of goods and services rises and falls in tandem. This is because supply (production) generates its own demand (income), and demand (income) generates its own supply (production).

Keynes' assumption that demand must be reduced in order to save is negated by the Real Bills doctrine. Under the Real Bills doctrine you don't need the rich (who produce far more than they can consume and are thus forced to save and reinvest their "demand" in forming additional new capital), because the banking system can create the necessary financing. By cutting demand to finance capital formation, you reduce consumption, and thus goods pile up unsold, companies cut production and lay off workers, and consumption falls even faster. To counter this, Keynes claimed that the State had to create money in order to increase demand. Thus you have the "traditional" Keynesian tradeoff between inflation and employment. If you want people to have jobs, you need to inflate the currency, but if you want low inflation, you have to put up with unemployment. None of this, of course, explains the centuries, millennia even, when you had full employment and low or no inflation.

Keynes' paradox results from Keynes disconnecting money (effective demand) from production (supply). When supply and demand is in equilibrium, there is no inflation because there is as much demand as there is supply, and as much supply as there is demand. By distorting one side of the equation by printing up money, however, Keynes locked the world's economies into a hopeless countercyclical spiral of inflation and unemployment.

The key to understanding this is that when the State creates money without backing (or, more accurately, backs it with a promise to pay out of future tax revenues, and thus creates a debt-backed currency), it doesn't really create demand. On the contrary, through the "hidden tax" of inflation, the State by printing money (or creating demand deposits) transfers or redistributes existing demand by making each unit of currency worth less in proportion to the amount of unbacked or debt-backed new money. That is, as any monetary economist will tell you, by doubling the number of units of currency in circulation without increasing the goods and services available for sale, you reduce the value of the existing units of currency by half, the value being transferred to recipients of the State's largess. The State produces nothing by its nature, not even demand. It simply shifts around what already exists by creating additional claims on existing wealth.

This is why Keynes rejected Say's Law and the Real Bills doctrine based on Say's Law. Say's Law makes Keynes look like an idiot, so he had to nip in there first and claim that Say's Law and the Real Bills doctrine were "discredited," as you will read, e.g., in the Wikipedia, but without explaining why.

The fact is, however, that Say's Law and the Real Bills doctrine don't work — at least not in a modern industrial economy in which human labor is being displaced as the predominant factor of production. Say assumed that there were no barriers to people acquiring capital when they could not produce by means of their labor. There are barriers, however, and those barriers are significant. Even in a Keynesian economy existing accumulations aren't used for investment directly, a fact Keynes appeared to be completely unaware of. Keynes himself maintained that "savings = investment," but failed to realize the implications of what he claimed was an iron law. If savings = investment, then where do the savings come from for new investment? Everything saved is already invested!

The fact is that existing savings are not used directly for investment. Existing savings are used for collateral for loans for new investment. As another old saw goes, you need money to make money. It's not that you need money to invest directly, you need money to ensure that whoever lends you money so that you can invest will be repaid.

This is the barrier that neither Jean-Baptiste Say nor Harold Moulton recognized. Say's Law and the Real Bills doctrine will not work if all (or nearly all) income generated by both labor and capital isn't spent on consumption. Both require that ordinary people own a share of the means of production in order to gain income when they can no longer sell their labor for enough to provide an adequate and secure labor income. The problem is that ordinary people don't have savings — collateral — to ensure that they will be able to repay someone who lends them money to purchase capital, should the capital by some chance not pay for itself.

Lack of collateral is the barrier that Louis Kelso and Mortimer Adler saw as preventing people from participating in the economy as sellers of labor, owners of capital, consumers, and producers. Without the ability to become a capital owner instead of being limited to an owner of labor, ordinary people are cut off from the immense stream of income (demand) generated by capital, and thus can't spend it.

Keynes thought you could make up this lack by "creating" new demand (actually redistributing existing demand) by printing money, thereby disconnecting demand from supply, and then trying to force them back together. In essence, Keynes took away the glues, screws, and nails that held the economic system together, and tried to fix it by pounding things back in place with a monetary and fiscal sledge hammer. It's no wonder that what we end up with is a mess of splintered wreckage.

To put things back together, we need a Capital Homesteading program that will remove the barriers to full participation in the economic common good, and replace the Keynesian sledge hammer with something a little more subtle . . . like the economics of reality and common sense.

Jobs, Jobs, Jobs

The problem with the idea of focusing on jobs, jobs, jobs, is that it's been done before, and has never worked. Unless a "job" results in the production of a good for service for which there exists actual demand, it is simply a convoluted way of redistributing existing wealth. If done through the tax system, "job creation" takes money from producers directly and bestows it on non-producers. If done by deficit spending, "job creation" transfers value from savers to non-savers via the "hidden tax" of inflation.

The latest "economic stimulus" bill, proposed by the Democrats, is reportedly a plan to spend nearly $1 trillion principally on "job creation." ("House Democrats propose $825 billion stimulus bill," Associated Press, 01/15/09) Assuming that the money doesn't get diverted into parties for executives of failed companies or used to purchase "toxic assets" resulting from decisions that would have gotten lesser mortals fired or jailed, the proposal would result in transferring $825 billion from the "haves" and giving it to the "have-nots," thereby reversing their roles, and justifying another program of redistribution to level things out yet again (with adequate compensation for the politicians and bureaucrats running the programs, as well as their friends, of course).

There is a much better way to turn "have-nots" into "haves," however — and without the necessity of wasting time, energy, and resources on massive redistribution programs or the injustice of stealing from some to give to others. It's called "Capital Homesteading for Every Citizen," from the book with the same title. Instead of trying to figure out ways to redistribute wealth, the legislature (both Democrats and Republicans) should be working to implement a sound program that opens up equal opportunity for everyone to participate in the economic process, as workers and owners, to say nothing of wage-earners and dividend recipients, and (most important of all), voters who elect public officials and members of the boards of directors for the companies in which they work and share ownership.

As we noted yesterday, a Capital Homestead Act has the best chance of achieving these goals that are completely unrealistic from within the current Keynesian economic paradigm. Still, even a Keynesian should be able to recognize the potential of a national economic program based on the binary growth model of Louis Kelso and Mortimer Adler, designed to lift barriers in the present financial and economic system and universalize access to the means of acquiring and possessing capital assets. A Capital Homestead Act would allow every man, woman and child to accumulate in a tax-sheltered Capital Homestead Account, a target level of assets sufficient to generate an adequate and secure income for that person without requiring the use of existing pools of savings or reductions in current levels of consumption.

How to Satisfy Your Demand

While we expected the stock market to take a deep plunge as soon as the euphoria wore off from Obama's inauguration (being touted here within the Washington Beltway in terms that suggest it will be The Party Of The Millennium), conditions are bad enough that the price of shares (and that of oil) declined in a manner has come to be described as "plummeting." ("Wall Street slides on bank fears and bleak sales," Reuters, 01/14/09) All of this suggests that "the market" has (consistent with the demands of Keynesian economics) become completely disconnected from the real, productive economy.

What puzzles the economists and policymakers is that there is clearly idle productive capacity, unsold goods are piling up, and yet there exists enormous unsatisfied wants and needs in the United States, to say nothing of the world. Keynes believed that to bring the two together, all the State had to do was print money and somehow get it into the hands of people who would spend it ("realize effective demand" is how Keynes put it). This would get rid of excess stocks of goods, and as demand increased, put people back to work creating more goods and services for sale, putting the economy back into equilibrium.

Strangely enough, however, while the Keynesian "print and spend" prescription has been economic orthodoxy for most of the past century, it doesn't seem to be working. Following Bush's lead, Obama has asked for even more money for "bailouts" and "stimulus," evidently on the assumption that, if it hasn't worked for the past seventy-five years, it's bound to work now.

If the powers-that-be could be brought to question their basic assumptions, they'd realize that the problem of the discontinuity between supply (production) and demand (income) is, in a sense, deliberate. Keynes rejected a little known "law" of economics, "Say's Law of Markets," which declares that "production = income." That being the case, Jean-Baptiste Say reasoned, demand generates its own supply, and supply its own demand. If so, there should never be any problem with unsatisfied demand or unsold goods and services. Is that, however, possible? According to Say, yes. As he put it in a response to the Reverend Thomas Malthus in 1821,

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.

What if there is something (or a great many somethings) that prevent someone from engaging in production? Louis Kelso and Mortimer Adler answered that by proposing that barriers to full participation in the economy be eliminated by making capital credit — the chief means by which we acquire and possess private productive capital — democratically available. By this means, people who currently have no capital will become owners of capital, and (once they have paid for their new capital with the income generated by the capital itself) will use the income for consumption, thereby bringing supply (production) and demand (income) back into balance — and all without the State doing anything other than making it possible by passing a Capital Homestead Act.

Obama Attempts to Squeeze Blood from a Turnip

The rather chilling headline reads, "Obama seeks Dem votes for $350 billion bailout" (Associated Press, 01/13/09). While the article, at less than 100 words is almost as short as the title, there is enough said to frighten anyone who believes in change for the better. The only change that is evident for the great mass of people is in the names of the individuals working as hard as possible to undermine what remains of the American economic system. As one ancient Roman put it, when changing rulers, the only thing that changes for the poor is a name.

They can blame Bush as much as they like (and they do), but Obama offers nothing in the way of genuine change. A week before his inauguration, Obama's administration has already shown signs that it means to continue implementing the bankrupt (and bankrupting) Keynesian "remedies," desperately trying to get something for nothing. The program is clearly "more of the same, only more so."

The tragedy is that Obama, like Bush before him, is presented with an opportunity as great (if not greater) than the problems he faces. By implementing a Capital Homesteading program at the earliest possible date, Obama would institute real, genuine change — for the better. As the postings on this blog have made clear for months, anything less is a recipe for disaster, as well as completely unnecessary.