The Restoration of Property, Part III: The Second Pillar

A basic tenet of the Just Third Way is that the free market is the best means for determining just wages, just profits, and just prices. The free market is in many respects a natural extension of, and a complement to the rights of private property, the free enjoyment of which is a necessary corollary to ownership itself. As William Cobbett, the "Apostle of Distributism" explained,

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.)

(Distributism is the somewhat misleading term for the system of widespread direct ownership of the means of production that Belloc and his confrere, G. K. Chesterton, advocated.) Thus, the free market is simply the power in aggregate of people doing what they will with what they own, constrained by the bounds of common sense and justice. In the ordinary course of events, the free market is a concrete, and possibly the most important daily manifestation of human liberty. Another term for liberty is the natural right of free association, a fundamental law of social justice and thus one of the foundation stones of human dignity.

From what we read in the previous posting in this series regarding the laws and characteristics of social justice, it should be glaringly obvious that "free association," especially in the marketplace, does not mean laissez faire, or doing whatever you want when you want to do it with no restraint from any quarter, regardless of the consequences. Very much the contrary — liberty implies action within a just social order. This in turn implies a strong juridical order to maintain that social order within tolerable limits. As the great German jurist Heinrich Rommen (a student of Rev. Heinrich Pesch, S.J.) explained,

The foundation of law is justice. "Truth grants or refuses the highest crown to the products of positive legislation, and they draw from truth their true moral force" (Franz Brentano). But truth is conformity with reality. And just as the real and the true are one, so too the true and the just are ultimately one. Veritas facit legem ["truth makes law"]. And in this profound sense of the unity of truth and justice the words, "And the truth shall make you free," are applicable to the community of men under law. True freedom consists in being bound by justice. (Heinrich Rommen, The Natural Law. Indianapolis, Indiana: Liberty Fund, Inc., 1998, 236-237.)

Understood in this way, the free market is the antithesis of capitalism as well as socialism. Under both capitalism and socialism, significant barriers are raised against ordinary people becoming owners of the means of production. In socialism these barriers are legal, and private property is abolished outright. In capitalism, institutional barriers and even implicit assumptions about money and credit — the most common means of acquiring and possessing private property — (most of which assumptions are distorted or just plain wrong) erect barriers that prevent the great majority of people from becoming owners.

The first — and last — thing always to remember about money is that, to be legitimate and serve the purpose for which it is intended, "money" must always — always — be directly backed by a private property interest in the present value of existing inventories of wealth (marketable goods and services) or the present value of an anticipated future stream of income generated by the production (and sale) of marketable goods and services. Money is directly backed by the present value of existing or future production only through the link provided by the institution of private property.

An indirect link between money and production, or (worse) no link at all, is a form of theft — a violation of private property — on the part of whoever issues the currency or creates the money. To be legitimate and fill its proper role, money is necessarily linked to production. In modern terms, "money" is a derivative of production, and is a fraud (a "fictitious bill") unless the issuer of the money has a direct private property stake in the production that backs the money.

The end result in either capitalism or socialism, however, is the same: the establishment of the Servile State. The great mass of people becomes economically dependent on a private or State elite that illegitimately takes over private property by controlling money and credit. The elite does this by preventing people from becoming productive, or by controlling the means and the manner in which people can produce. Whether the State elite controls the private elite that controls the means of production (as in socialism), or whether the private elite that controls the means of production controls the State elite (as in capitalism), becomes a matter of complete indifference to anyone who subsists on wages or welfare alone, as long as the income keeps coming, and as long as the spirit of liberty has been sufficiently quelled in the human heart.

The problem in a technologically advanced economy such as the world now for the most part enjoys, is that the system will eventually break down unless the great mass of people become direct owners of the means of production. When the production of most marketable goods and services is due not to human labor, but to machinery, a well-ordered system absolutely requires that people have access to the means of acquiring and possessing private property in the non-human means of production, as formerly they enjoyed natural access to the direct ownership of their own labor.

Of course, everyone is aware that in the past, when human labor was the primary means of production, there were always attempts to prevent people from enjoying the full fruits of their natural ownership of labor, just as today there are continuing efforts to keep people from becoming owners of technology. Preventing people from enjoying the fruits of ownership of their own labor is called "slavery." Preventing people from becoming owners of the non-human factors of production is called "wage slavery," or "the wage system."

Not that there is much difference in the justifications used for the two systems. For example, as David Christy explained in his appalling justification of chattel slavery published on the eve of the American Civil War, Cotton is King (1855), the economic health of Anglo-American civilization, that is, the British Empire and the United States, was presumed to rely absolutely on the slave cultivation of cotton and other agricultural products needed to supply the mills of Manchester and the factories of the northeastern United States. By no other means could the wealth and power of Anglo-American civilization be preserved — or so Christy took as his basic premise.

Further, Christy claimed that black slaves were fitted by nature to fill no other role, living in utter barbarism in their home continent until brought to America as slaves and raised as far as their nature permitted. The observed behavior of free blacks presumably proved them incapable of the sustained effort necessary to succeed in being productive because they could not be forced to work. Whites were not physically suited to the cultivation of cotton, coming from the temperate climate of Europe, while blacks were especially designed by nature to be guided by whites and put to work in a climate that most closely matched that of their native land.

And so on — all argued with sincerity and supported by a great mass of statistical data that was very effective in convincing a great many people, then and now, of the truth of the assertions. The logical flaws in Christy's argument are obvious to anyone familiar with the Aristotelian/Thomist basis of binary economics, but remain hidden to those who take as a given the same assumptions as Christy about human nature as well as money and credit that afflict us today. Christy's argument was persuasive enough to provide a presumably sound economic argument for succession of the southern states when they feared that abolition of slavery would be mandated with the election of Abraham Lincoln. Cotton is King was quoted at length in Congress and in the press in debates about slavery.

Tellingly, the arguments in favor of chattel slavery do not differ substantially from the arguments advanced in favor of the concentrated ownership of the means of production that characterizes industrial capitalism and socialism. The main difference is in the factor of production being monopolized. In the chattel slavery system, ownership of human labor is separated from the slave and vested in a master. In capitalism, ownership of technology is separated from the worker and vested in the capitalist. In socialism, ownership of both technology and labor is separated from the worker and vested in the State.

Just as David Christy provided the economic argument to support chattel slavery, John Maynard Keynes provided (or at least congealed into an unquestioned dogma) the economic argument to support the Servile State of capitalism and socialism, that is, wage and welfare slavery. These arguments are well known to anyone who has ever read the book that made Keynes's reputation, The Economic Consequences of the Peace (1919), or the Keynesian "bible," The General Theory of Employment, Interest, and Money (1936). The most important Keynesian dogma, established solidly on the wrong definition of money, is found in The Economic Consequences of the Peace, and calls forcibly to mind a similar claim by David Christy with respect to slavery:

The immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably. (The Economic Consequences of the Peace, Chapter 2, Section III.)

Examined objectively of course, the reasons given why a presumably economically healthy society requires chattel slavery, capitalism, or socialism all have one thing in common. They all share the same assumption that ownership of the means of production must be concentrated if the economic health of society is to be maintained. And why must ownership of the means of production be concentrated rather than "divided equitably"? Because capital formation can, presumably, only be financed out of existing accumulations of savings, and only the rich (and the richer, the better, to maximize economic and social progress) have the ability to cut consumption and save. Ownership of the means of production must be concentrated and private property in the means of production effectively abolished in order to justify limited redistribution of the fruits of ownership to non-owners.

Everything in Keynesian economics flows from this assumption. To understand this, we need only realize that this Keynesian dogma is, broken down to its essential elements, 1) the belief that capital formation cannot be financed except out of existing accumulations of savings, 2) that "savings" consists exclusively of unconsumed production, 3) that "money" is solely determined and created by the State, and 4) no economic activity can be carried out except that which is directly sanctioned by the State. (See Thomas Hobbes, Leviathan, II.22.)

Capitalism (and, more obviously, socialism and slavery) is therefore as far from being a "free market" as it is possible to get and still delude yourself that capitalism and the free market are the same thing. The main difference between capitalism and socialism with respect to the free market is that, where capitalism claims that a free market is good (at least for a few), perhaps even the greatest thing that exists, its adherents recognize that a few socialist expedients may be necessary to keep people quiet. For its part, socialism claims the free market is evil, although a few capitalist expedients may be necessary (to be enjoyed, of course, only by a few) to keep the economy running.

Once capitalism and socialism meet on the common ground of the Servile State, however, we readily understand why, 1) a free market is so essential to basic human dignity, and 2) equating capitalism and the free market, or claiming that "free market reforms" make socialism less unjust is simply a way of fooling ourselves. Then there is the fact that adherence to such unthinking dogma simply obscures the real problem with the free market — which is that the so-called free market is anything but free when the great mass of people lack access to the means of acquiring and possessing private property in the means of production. Until and unless that criterion is met, no economy can be called truly free.

Ownership of at least a moderate stake of income-generating assets is essential not only as the chief support of individual human dignity and a democratic political order, but to equalize the condition and bargaining position of participants in the marketplace. Alexis de Tocqueville made this strikingly clear in his monumental sociological study of the United States during the Jacksonian era, Democracy in America (1835, 1840). As de Tocqueville related in a passage of which most people fail to realize the significance,

In democratic countries as well as elsewhere most of the branches of productive industry are carried on at a small cost by men little removed by their wealth or education above the level those whom they employ. These manufacturing speculators are extremely numerous; their interests differ; they cannot therefore easily concert or combine their exertions. On the other hand, the workmen have always some sure resources which enable them to refuse to work when they cannot get what they conceive to be the fair price of their labor. In the constant struggle for wages that is going on between these two classes, their strength is divided and success alternates from one to the other.

It is even probable that in the end the interest of the working class will prevail, for the high wages which they have already obtained make them every day less dependent on their masters, and as they grow more independent, they have greater facilities for obtaining a further increase of wages.

I shall take for example that branch of productive industry which is still at the present day the most generally followed in France and in almost all the countries of the world, the cultivation of the soil. In France most of those who labor for hire in agriculture are themselves owners of certain plots of ground, which just enable them to subsist without working for anyone else. When these laborers come to offer their services to a neighboring landowner or farmer, if he refuses them a certain rate of wages they retire to their own small property and await another opportunity. ("Influence of Democracy on Wages," Democracy in America, Volume II.)

Arguing an unsuspected familiarity with de Tocqueville's work, in this passage we can discern concepts that Pope Pius XI seems to have lifted wholesale and inserted into Quadragesimo Anno ("On the Restructuring of the Social Order"), 1931, notably paragraphs 59-63. More to the point, however, we find affirmation of Belloc's (and Cobbett's) principle that the Servile State consists not in the formal institution of slavery, but in the powerlessness and consequent dependent status that afflicts those who own nothing.

The Servile State consists principally of removing the free choice whether or not to work by making subsistence completely dependent on wage or welfare income. Clearly, then (just as Cobbett claimed) true slavery consists of the inability to enjoy the fruits of ownership of the means of production. In contrast, the free market consists of a marketplace in which everyone not only has the right to participate freely as consumers and producers, by means of both their labor and their capital, but also has the means to exercise that right in a meaningful fashion, that is, freely.

#30#

More of the Same, Only More So

Important as the current blog series on the monetary and fiscal reforms proposed under the Just Third Way may be, we find ourselves enmeshed in the Matrix — not the films, but the "Urgent/Important Matrix" found in the science of time management. Hence, while getting normal people and even academics and policymakers to understand money is absolutely essential if we are to get out of the hole into which the misunderstanding of money and credit have plunged us, we also have to keep up with the urgent need to take care of all the immediate crises caused by the misunderstanding of money and credit.

Something is clearly wrong, especially with President Obama's vision of hope and change. Evan Bayh of Indiana has just announced he will not run for a third term in the U.S. Senate. ("Bayh's Leaving is Latest Setback to Party," The Washington Post, 02/16/10, A1.) Byron Dorgan of North Dakota and Christopher Dodd of Connecticut — senior Senators in key positions — had already announced they were not running for reelection. Ted Kennedy's Democratic sinecure in Massachusetts went to a Republican, and so on. Something clearly has to be done, and done right away.

First, however, a quick lesson in social justice: as we've noted a number of times on this blog, and as is explained in William Ferree's Introduction to Social Justice, social justice — organized efforts to restructure our institutional environment in order to lower barriers to full and effective participation in the common good — takes time. That being the case, what do you do in the meantime to take care of all the immediate problems that keep cropping up? You take care of them, of course. Just be careful that whatever you do doesn't negate or contradict the long-range solution that you're working toward in social justice.

Unfortunately, that is what is happening all over, most recently with the "PIIGS" crisis in Europe. ("The Greek Tragedy that Changed Europe," The Wall Street Journal, 02/13-14/10, W1.) Consistent with the principles of Keynesian economics, in which you can continue to spend without producing forever and ever without the bill ever coming due, Portugal, Ireland, Italy, Greece, and Spain — the PIIGS — have habitually spent more than they have produced, or that people have available to tax. To add to the problem, unions in Greece are demanding increases in pay and benefits without a corresponding increase in production.

Obviously, this situation is unsustainable. As Jean-Baptiste Say explained to the Reverend Thomas Malthus nearly two centuries ago,

Since the time of Adam Smith, political economists have agreed that we do not in reality buy the objects we consume, with the money or circulating coin which we pay for them. We must in the first place have bought this money itself by the sale of productions of our own. . . . it is impossible for [us] to buy any articles whatever to a greater amount than that which [we] have produced either by [our]selves, or by means of [our] capitals and lands. (Jean-Baptiste Say, Letters to Mr. Malthus on Several Subjects of Political Economy and on the Cause of the Stagnation of Commerce. London: Sherwood, Neely & Jones, 1821, 2.)

Even more simply put, you can't spend what you don't have — and you won't have anything if you don't produce something. Attempts to get out of a hole by digging it deeper (the Keynesian solution), or just stop spending so much money (the Monetarist and Austrian solution) are worse than doing nothing. They give the illusion that something positive is being done and build false hopes, while in reality the situation is being made worse by adherence to systems that have already proven either inadequate or counterproductive, and the maintenance of barriers that inhibit or prevent ordinary people from becoming productive.

Nobody is addressing the real issue: how do you make people productive so that 1) they have something to spend to meet their needs without going into debt, and 2) they have something that the State can tax and spend to meet its needs without going into debt. There are significant barriers in place preventing either individuals and families, or the State from meeting their needs out of current income, that is, out of what is currently being produced. Europe (and the rest of the world) has been living off of past accumulations, and the bill is coming due.

The single most important of these barriers is twofold: 1) the people in charge of the system don't understand money, and consequently 2) they continue to create money in ways that enslave rather than liberate people. This puts people at the service of money, rather than putting money at the service of people.

The solution is to organize in social justice and work together to change the way in which money is created, and to effect the change in a way that liberates people. We're already presenting the details of what needs to be done in our current blog series on the restoration of property, but writing and posting a blog, however careful the analysis and brilliant the presentation, is useless unless 1) people read the blog and send links to the blog out to their networks, and 2) policymakers become aware that there is a sound alternative to the raving insanity of thinking that they can continue to spend without producing, or can cut spending without having anything in the coffers in the first place.

The first of these steps we can accomplish immediately — that is, you, the reader, can do so, just by sending out links to these postings to your network. The second involves a little more effort: show up at the annual rally outside the Federal Reserve in Washington, DC on Thursday, April 15, 2010 (after you've filed your tax return, of course). If you can't make it to the rally (and even if you can), spread the work around your networks by (again) sending out links to the blog postings.

You might even try dropping a hint or two to your local media — those outlets that actually pay attention to their listeners and readers. Let them know that there is a possible solution to the current crisis that virtually no one in authority or a position of power is looking at, and direct them to the CESJ website for further information, especially the material on Capital Homesteading.

Mark your calendar: April 16, 2010.

#30#

The Restoration of Property, Part II: The First Pillar

The first pillar of an economically just society is that the State in the Just Third Way should only exercise an extremely limited role in the economy. Being made by people for people, although consistent with human nature and ordinarily necessary for our full development as persons, the State is nevertheless only a tool — a highly specialized and extremely powerful tool, but still only a tool. When the State no longer serves the purpose for which it is designed and intended, it must be reoriented and repaired so that it once again functions properly.

With respect to economics, the proper role of the State is to ensure as far as possible that all citizens have the same opportunity to participate in wealth creation on an equal basis with everyone else. Generally construed as providing "a level playing field," the State's job typically consists of establishing and maintaining a strong juridical order consistent with the natural moral law (the "rule of law"), setting standards for weights and measures — including the currency — policing abuses, and enforcing agreements when parties to a contract have a dispute or disagreement concerning the "meeting of the minds."

The State's task is not to initiate, create, or control persons, institutions, relationships, or anything else, although it does have a limited role in clarifying and promulgating definitions of institutions and specifying how rights are to be exercised. This is usually by the State putting its "imprimatur" on what "public opinion" (A. V. Dicey's term) has already decided. Never, however, does this extend to the State having the sort of absolute power that claims the ability to change definitions, develop new definitions, or in any way (in Keynes's words) "re-edit" the dictionary. State absolutism is the basis for Keynes's claim, in his Treatise on Money (1930), developed out of the tenets of the British Currency School, that the State alone has the power to decide of what "money" consists, who may contract and for what, and who may participate in the common good on a more or less equal basis.

On the contrary, even the corporation, specifically a "creature of law" is not, in social justice, created by the State, but by private citizens organizing, and obtaining official sanction and protection of their acts as a corporate body. The State is supposed to regulate transactions and relationships that stray too far from acceptable norms established by consensus, and, as far as possible, bring matters back into conformity with human nature when failure to conform to these standards has a materially harmful effect on individuals, groups, or the common good as a whole. The State does not have the power to create anything, especially money, as that claim effectively abolishes private property and freedom of association.

Further, as a human creation itself, the State is compelled to act in the best interests of its citizens, even those instances in which a majority wishes to override or abolish the rights of a minority, or a minority seeks to use its political or economic power to oppress the majority . . . especially if the minority believes it to be for the majority's own good. While there is a wide area in which the majority or minority should rule, and may do so in fact, there is a line that must not be crossed. That line is crossed whenever those in power seek to use the State's monopoly over the instruments of coercion for its own advantage, and in contravention of the natural moral law to abolish or inhibit the free exercise of natural rights in ways not demanded by the common good or the individual good of persons and groups.

The State's job is to promote the general welfare, not the particular welfare of any individual or group to the disadvantage of others, no matter how large or important the group presumably being benefited. One of the premises of capitalism is that the State can safely ignore its responsibility for the general welfare by taking a laissez faire approach to particular welfare. Socialism, on the other hand, assumes that the general welfare is best promoted by having the State take care of each individual's particular welfare. Both socialism and capitalism assume that the general welfare is the sum of society's particular welfares, and that what best promotes particular welfare automatically secures the general welfare.

Both capitalism and socialism thereby manage to be wrong in the same way, and so, while seemingly diametrically opposed, always end up as virtual mirror images of each other. Both, by one route or another, end up at the Servile State, with an indistinguishable private or State elite in charge, and the great mass of people in a condition of utter dependency on that elite. Thus, both capitalism and socialism, whatever we might call them or try to argue otherwise, offend against essential human dignity at the most basic level. Both capitalism and socialism are "top down" and fail to respect people as people, attempting to impose their respective (if indistinguishable) visions of what is good by force, and maintain it through coercion.

In contrast, the Just Third Way approaches matters from the "bottom" up. The underlying problem in the difference between capitalism and socialism, and the Just Third Way lies in our understanding of the common good, a more precise and meaningful term than general welfare. (The reasons the American Founding Fathers used "general welfare" instead of "common good," and "pursuit of happiness" instead of "acquiring and developing virtue," while important, would be a diversion, and are peripheral to our main point, anyway. They will not be covered in this discussion.)

The common good is not a vague concept, nor is it automatic collectivism. Instead, the common good is something that can be defined with scientific precision and in a manner consistent with essential human nature. The common good is not the collection of particular goods of individual persons or groups. Instead, the common good is the network of institutions within the overall framework of the social order — and, in fact, that largely make up the social order — within which humanity, as "political animals," acquires and develops virtue, thereby becoming more fully human. The specific job of this institutional network is to assist individuals to acquire and develop virtue: "pursue happiness." By this means individual human beings realize their human potential to the optimum degree possible without harm to other individuals, groups, or the common good as a whole.

When our institutions are flawed to such a degree that they either do not assist us in pursuing happiness, or actively and materially inhibit us in the task of realizing our fullest human potential, it becomes our individual responsibility to organize with like-minded others and work to reform our institutions. Our goal is twofold: 1) restructure our institutions so that they once again assist us in our pursuit of happiness, and 2) ensure that our understanding of happiness conforms to universal standards of virtue.

The means by which we reform our institutional environment to conform it to the Just Third Way is the "act of social justice," ably summarized by William J. Ferree, S.M., Ph.D., "America's greatest social philosopher," in his short work, Introduction to Social Justice (1948). Briefly, it is clear that individuals are frequently helpless when faced with unjust social structures and problems that afflict the whole of society. Faced with the impossible task of trying to change things individually, the rational person will not destroy him- or herself in a hopeless struggle, however gallant and virtuous it might seem, but will give up, and go along to get along. No one, after all, is required to do the impossible.

As Ferree demonstrates, however, the individual is far from helpless — but only when he or she organizes with others, and carries out directed acts of social virtue. This cannot be done as individuals, but as members of a group in an organized and coherent program of specific reform. Ferree identifies certain "laws and characteristics" of social justice by means of which we are empowered to act directly on the institutions of the common good.

The first "law" of social justice is that the common good must be kept inviolate. That is, "in all private dealings, in all exercise of individual justice, the Common Good must be a primary object of solicitude. To attack or to endanger the Common Good in order to attain some private end, no matter how good or how necessary this latter may be in its own order, is social injustice and is wrong." (Introduction to Social Justice. Washington, DC: Center for Economic and Social Justice, 1997, 35.) If what we propose to do violates anyone else's rights, or harms the common good in any material fashion (e.g., abolishing the institution of private property, or redefining another individual or group as "non-persons"), we cannot justify that act.

The second "law" of social justice is "cooperation not conflict." Socialism and capitalism both understand the common good as a collection of particular, that is, individual goods. When we confuse individual goods and the common good — or, worse, common goods and the common good — we necessarily put all individual goods and common goods in conflict with one another. Instead of trying to establish the ascendancy of our particular good or goods over those of others, or one or two common goods over the totality of goods held in trust by the State for the benefit of society, we have to realize two things. One, the common good is not a collection of individual goods, or even those common goods that, for the sake of expedience, the State "owns." Two, realization of our individual goods, and the optimal enjoyment of common goods, can only take place within a strong juridical framework in conformity with the natural law and to which all citizens have given their consent, whether explicit or tacit. This requires that people and groups cooperate within the institutional environment of the common good in order to gain the optimal benefit without harming the rights or interests of others.

The third "law" of social justice is that "one's first particular good is one's own place in the common good." This law is a logical extension of the first two laws. The first law is that we cannot hijack any part of the common good, that is, any institution (such as an individual right to choose or private property), or the common good as a whole to advance our individual interest(s). This third law is that we cannot hijack any part of the common good or the common good as a whole to advance our institutional interest(s), that is, our group or groups over other groups or the common good as a whole. Groups must cooperate, not come into conflict, within the institutional framework of the common good in the same way as individuals.

The fourth "law" of social justice is that "everyone is directly and personally responsible for the common good." This is because the common good is made up of institutions. These institutions are, in turn, made up of sub-institutions, and these sub-institutions are made up of sub-sub-institutions, and so on, ad infinitum, down (or, more accurately, up) to the individual. ("Up" is more correct because all institutions are made to serve humanity, not the other way around; the "organizational chart" for society should be an inverted pyramid.) Further, these institutions combine with other institutions at their "level" of the common good to form milieux, or the various media of life within particular contexts. As we might expect, these milieux are made up of sub-milieux, and these sub-milieux of sub-sub-milieux, and so on, "down" to the individual, on whose natural rights the whole towering and complex superstructure of the common good ultimately rests. These relationships are in a constant state of flux, to such a degree that the social order can be described as being "radically unstable," at least in the sense that changing milieux, moving between institutions, interacting with other groups and individuals, and so on, means that each person's specific social situation is never the same. Thus, because everything ultimately derives from the individual and social rights possessed absolutely by each and every human person, it necessarily follows that each and every human person has a direct and individual responsibility for the common good.

The fifth "law" of social justice is that "higher institutions must never displace lower ones." This is the principle of subsidiarity. That is, because each and every individual has a personal responsibility for the common good at his or her level, institutions at "higher" — or "lower" — levels of the common must never take over the functions of institutions at other levels. They would otherwise be usurping the responsibility and thus power of those who subsist at that level. Regardless of whatever level of the common good we're talking about, "insiders" are the ones primarily responsible for their own institutions. "Outsiders" can assist, and even in an emergency take over from the insiders temporarily, but never displace the institution itself. That would be to impose a condition of dependency on those who subsist within that institution, which is directly contrary to the demands of human dignity, and thus of social justice.

The sixth "law" of social justice is "freedom of association." This is the "liberty" of which America's Founding Fathers spoke. It does not mean license, that is, doing whatever you want, when you want. There is some of that, but only within the strong juridical framework of the common good, and only if doing what you want when you want doesn't harm anybody or anything, including yourself. The reason freedom of association is a law of social justice is that the act of social justice is necessarily social, and that means social justice is only possible if people are free to associate.

The seventh "law" of social justice is that "all vital interests should be organized." As Aristotle observed, "man is by nature a political animal" (The Politics, I.ii). That being the case, humanity acts in accordance with its own nature when it acts politically, that is, in an organized and structured manner within the polis, that is, the social unit.

In addition to the laws of social justice, we also have six essential characteristics by means of which we can make a good determination whether what we are engaged in is truly "social justice," and not just extended individualism or collectivism.

The first characteristic of social justice is that acts of social justice cannot be carried out by individuals as individuals. The act of social justice is something that can only be carried out by members of groups, that is, as a political act.

The second characteristic of social justice is that it takes time. This makes sense if we stop to think about it. "Virtue" is defined as the habit of doing good. Building good individual habits can take a lifetime. How much more time, then, can it take to overcome social inertia and build good institutional habits? Of course, this doesn't mean that it isn't possible to change institutional habits overnight, but as a general thing, don't count on it.

The third characteristic of social justice is that nothing is impossible. As we've already noted, individuals frequently feel helpless in the face of what seem to be (and frequently are) insurmountable social problems — speaking individually. The common good, however, is composed of an effectively infinite number of institutions, every single one of which was made by human beings. The necessity for these institutions is "hard wired" into our nature, but the specific form that the institutions take is due to conscious decisions made at some point by human beings. Human beings made our institutions, and human beings can therefore remake our institutions — once we approach the task with the tools that social justice gives us.

The fourth characteristic of social justice is constant vigilance. Obviously, as we can see from the structure of the common good, in which we have different levels of institutions, institutions combining and recombining to form different milieux, and the people, groups, and sub-groups within institutions and milieux constantly changing the relationships between all these elements, the social order is in a constant and bewildering state of flux. That being the case, we must keep a constant watch on our institutional environment to make certain that it continues to meet our needs and wants adequately (it will never do so perfectly) and, should our institutions stray too far from their assigned roles, organize with others to correct the situation and put things back on course.

The fifth characteristic of social justice is effectiveness. We can have all the good will in the world, but if what we propose to do in order to improve the general welfare or ameliorate the condition of the poor or anyone else won't work, we would be acting in a socially unjust manner. It's not enough to intend to do the right thing. The intended good must stand a reasonable chance of being accomplished, and without any unintended but anticipated non-objectively evil consequences. That is, we must not only be right, we must do right. A virtuous and glorious defeat just to make a point or to prove how much better we are than others is not a socially just option.

The sixth characteristic of social justice is that organizing with others to restructure our institutional environment for the better is not optional. It is, on the contrary, a rigid obligation imposed on us by our very nature. As political animals, human beings ordinarily acquire and develop virtue (pursue happiness) within a well-structured social order. That being the case, when the social order is flawed we owe it to ourselves as members of the human race to organize with others to get things back on track when necessary.

The bottom line is that the State has a definite role to play, but the State's role is not as sweeping as the socialists claim, nor as the capitalists eventually (and inevitably) demand. Instead, as should be obvious from the above discussion on the laws and characteristics of social justice, lex ratio, "rule of law" — reason — necessarily takes precedence over the capitalists' and the socialists' lex voluntas, "rule of whim" — will. The State does not determine what is right or wrong. Consequently the State cannot either impose desired results or stand aside and let people do what they will, whether or not what they will is in conformity with nature. As A. V. Dicey pointed out, the State, no less than every individual in the State, is subject to the law. Neither the State nor anyone else can " 're-edit' the dictionary."

#30#

News from the Network, Vol. 3, No. 6

Predictably, yesterday's announced salvation from the European debt crisis has already started "faltering." Of course, since the gist of the announcements was that relief would take the form of moral support, not cash in hand, this is not unexpected. Not that printing up more worthless currency backed by a rapidly degenerating tax base would have done much more than bolster the stock markets for the gamblers and speculators for another week or so, but still, Greece, Spain, Portugal, and Ireland deserve something a little more substantive than ineffectual hand-holding.

On top of that, the news from China is that they are starting to fiddle with commercial bank reserve requirements to tighten up on credit and inhibit productive activity, causing stocks to fall around the globe, while from Europe we hear that the "recovery" is losing momentum and may "slip into recession again" (did it ever climb out?) while the German economy has "flattened out" (which means . . . what? to people already rather flattened out by the Great Recession) and is "losing steam," etc., etc., etc. — it's déjà vu all over again.

Ho hum, or (perhaps more appropriately for the academics, policymakers, and pundits who have been trumpeting that "The Recession Is Over!! (!!!)"), "D'oh." ("D'oh" is in the OED, so it's okay to use . . . besides, what else can they say? "%$@#"?)

Distilling the essence from these dismally similar reports, the pace of economic decline, an inevitable result of trying to manipulate reality by transubstantiating money and credit (for those readers who are not Catholic, High Church Anglican, or Orthodox, that means keeping the outward form of something while changing the thing's substantial nature, which only God has the power to do, not the State or a central bank), is accelerating, just as we have been predicting it would, and will continue, as long as the powers-that-be resist implementing Just Third Way solutions.

Nevertheless, we are making progress — and any progress in times like these is one giant leap for mankind, when our leaders-by-default are falling all over themselves to fall all over themselves. Even given the Worst Snowstorms In The History Of The World, Ever (!!!!!) some significant advances are being made in moving the Just Third Way forward. Consider what you can do to start opening doors to prime movers in order to keep things moving forward:

• As has become the case in recent months, a number of meetings have taken place, mostly by telephone, that have the potential to have a very significant influence on events in the near future. By their very nature, however, these meetings are not something that lend themselves readily to reporting as news items, except to note that a number of important meetings have taken place.

• A prospective CESJ Counselor, the Rev. Edward Krause, has sent letters to a number of individuals who might prove to be pathways to some possible door openers who have the potential to help us arrange meetings with prime movers such as President Obama and His Holiness Pope Benedict XVI.

• The Reverend Robert Brantley, another potential CESJ Counselor, has been working diligently not only to use his "political capital" to try and open doors to prime movers, but has also organized with some businessmen in Maryland to explore the possibility of a Just Third Way project embodying Justice Based Management. Anyone interested in investigating practicable applications of the Just Third Way should pay a visit to the website of our related for-profit consulting group, Equity Expansion International, Inc.

• The first commercial sales of Dr. Alamgir's book, Notes From a Prison: Bangladesh, have been made. The book is available from Amazon and Barnes and Noble, as well by special order from many other bookstores. BTW, Amazon now has the "cover art" up, and Dr. Alamgir's son Joy has posted a short customer review. You might want to consider purchasing a copy and posting your own review — drawing attention to the short but insightful "plug" given to the Just Third Way in the book, and the need to build political democracy on a solid foundation of true economic democracy, characterized by the "four pillars" of an economically just society: 1) A limited economic role for the State, 2) Free and open markets as the best means of determining just wages, just prices, and just profits, 3) Restoration of the rights of private property, particularly in corporate equity, and (the "fatal omission" in virtually all economic systems today), 4) Widespread direct ownership of the means of production. NB: Barnes and Noble is still offering the "member price" to everyone on all books.

• If you don't have the time to read and review Dr. Alamgir's book, consider making a contribution to the Institute for Integrated Rural Development in Bangladesh, which is doing great work lifting the poorest of the poor out of dire poverty. Reverend William Christensen will be visiting the United States this summer, and your church or civic group might want to sponsor a talk. Contact the IIRD office in the United States in St. Louis, Missouri, for details.

• Manuscripts of two new publications, tentatively titled Supporting Life and The Political Animal, both adapted from postings on this blog, are currently in editing, as is Dr. Harold Moulton's 1935 classic, The Formation of Capital and the combined volume of Father William Ferree's Introduction to Social Justice and Discourses on Social Charity.

• Speaking of publications, the "policy manual" of the Just Third Way, Capital Homesteading for Every Citizen, is available from Amazon, Amazon UK, and Barnes and Noble, as well as a free download from the CESJ website. In Defense of Human Dignity, a collection of articles previously appearing in the Social Justice Review, the official journal of the Central Bureau of the Catholic Central Union of America (with some additional previously unpublished material) is also available from Amazon, Amazon UK, and Barnes and Noble. You might want to consider purchasing either or both, and writing reviews to post on Amazon.

• Completely by chance, the piece titled "Ride the Pig" came out the same day as a Pat Buchanan posting titled, "The Bankrupt PIGS of Europe." Dr. Robert Crane sent the link and a copy of Mr. Buchanan's article, suggesting that people might want to go to Buchanan's blog and post a comment or two. It might be an interesting experiment to try and see if Buchanan, who appears to have no solution, would be open to a Just Third Way approach to rebuilding a shattered economy, and to picking up the phone and having a talk with Norman Kurland to see how to fix things, rather than simply diagnose.

• As of this morning, we have had visitors from 46 different countries and 47 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Brazil, and the Philippines. People in China, Australia, Taiwan, Poland, and Venezuela spent the most average time on the blog. Part 20 of "The Political Animal," Part 1 of the new series on the restoration of property, "Ride the Pig" (!), Guy Stevenson's guest posting, and "Waiting for the Penny" are the most popular postings.

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.

#30#

The Restoration of Property, Part I: Introduction (Concluded)

As we saw in the first posting in this series, a pendulum swing between capitalism and socialism, always tending to the establishment of the Servile State seems inevitable — given the reliance on
certain theories of sovereignty and the understanding of money found in the tenets of the British Currency School, adopted by the Keynesians, Monetarists, Austrians, and just about everybody else. Small wonder that Belloc's Restoration of Property is a grim effort that ultimately offers nothing practicable — as Belloc admits in his Preface:

It is customary in presenting any political thesis to include an element of hope. Professional politicians always make a point of prophesying success and even more respectable and sincere reformers love to exaggerate the changes of their ideal and even to affirm its ultimate victory as certain.

This has always seemed to me great folly. Wisdom consists in the appreciation of reality. If you approach a most difficult task under the illusion or the pretence that it is less difficult you may strengthen your supporters by the drug of illusion but you weaken them much more by persuading them to work in the void.

Respect for reality compels me to say that the Restoration of Property when that institution has all but disappeared is a task almost impossible of achievement. If it were quite impossible of achievement it would not be worth while wasting breath or ink upon it. It is not quite impossible of achievement; at least, it is not quite impossible to start the beginnings of a change. But the odds against a reconstruction of economic freedom in a society which has long acquired the practice and habit of wage slavery is difficult beyond any other political task. (The Restoration of Property, op. cit., 11-12.)

Keep in mind that these words were written three-quarters of a century ago, and the situation has, if anything, gotten much worse than Belloc ever appeared to imagine or fear. The degree of economic, social, and legal dependency so contrary to the Just Third Way has increased to the point where the powerless condition is not only accepted, most people — especially our leaders and policymakers (to say nothing of academics) — consider it normal.

Evidently we can neither move forward nor stay where we are. The only solution that many people, including Belloc, see is to dismantle modern civilization, making it more manageable by cutting it down to size, down to a more "human scale." Is, however, there a reasonable alternative consistent with human nature? A just third way above and beyond both capitalism and socialism, and that doesn't require us to regress to subsistence farming, artisan crafts, or hunting and gathering? (It is notable that the strongest advocates of the "small is beautiful" approach have rarely, if ever, been absolutely dependent on subsistence agriculture or handicrafts to meet their consumption needs.) We believe that there is, in fact, a "Just Third Way" that does not require that we sacrifice centuries of progress in order to bring everyone down to the same level of misery. This requires a better understanding of power and property.

Unfortunately, these days "power" is a dirty word, and "property" is well on its way to becoming one. This is hardly surprising, when we consider Daniel Webster's dictum that "power naturally and necessarily follows property." In the United States, a country explicitly founded on the belief in the sovereignty and personhood of each and every human being, and the idea that the State derives all of its powers from "We, the People," matters have reached such a pitch that even the U.S. Supreme Court bestows and withholds personality, apparently when and where it will.

This has the effect of making every citizen a "mere creature of the State" (see Pierce v. Society of Sisters, 268 U.S. 510 1925) whether we are referring to outright socialism or the Servile State as the halfway house on the road to complete State control. People lose sight of the fact that the State must be limited to its proper role as a very specialized social tool charged with the care and maintenance of the common good. This it does best and consistently with the Just Third Way by limiting its economic operations, policing abuses, and providing a level playing field as a government of the people, by the people, and for the people — not an economic or State elite.

As Belloc noted, the State best cares for the common good by providing an opportunity for ordinary people to become owners of the means of production, and in maintaining the order necessary to a stable social order. As he stated,

There must exist in some form the State. A sufficiently large unit for the development of the arts and the better complexities of life must be organised. Its power must be appealed to for the satisfaction of justice, the prevention of internal disorder and for the arrangement of defence against external aggression. In general the State must exercise some restraint upon the ideal economic freedom of the family or freedom itself cannot be guaranteed. (The Restoration of Property, op. cit., 15-16.)

In other words, "property" does not mean doing what you will with what you own. On the contrary, as is the case with democracy itself, true economic freedom consists of limiting the exercise of your rights of private property in order to maintain your absolute right to be an owner. In short, you cannot use your possessions to harm yourself or others, or the common good as a whole. This is how we can speak of each human being having an absolute right to private property, but limited rights of private property . . . as long as the exercise of private property is not defined in any way that undermines the absolute — natural, inherent, inalienable — right to be an owner in the first place.

As one of the founders of the distributist movement, Belloc recognized the fact that widespread ownership of the means of production is essential to a healthy society. This is consistent with the natural moral law. As he said, defining "economic freedom" as ownership of an adequate stake of income-generating assets, "Economic freedom can only be a good if it fulfils some need in our nature." (Ibid., 21.) He first explained why private property is important. He then presented a general program for achieving the goal of expanded capital ownership.

From the first there were serious problems with Belloc's proposals. This is not surprising from the grimness of his outlook — and, unfortunately, given his definition of money, ironically the same as Bagehot and Keynes, a definition contrary to the natural moral law, as we will see in subsequent postings. Not the least of these was the paradox that he proposed measures that he did not believe could be successful or would work in the current state of society. This, in and of itself, is contrary to social justice.

It is a basic characteristic of social justice as discerned by the Reverend William J. Ferree, S.M., Ph.D., that what we propose to effect necessary changes in the social order must be effective. (Introduction to Social Justice. Arlington, Virginia: Center for Economic and Social Justice, 1997, 51-52.) As "political animals," humanity is, obviously, constrained to act politically. Politics being the art of the possible, we should never waste our time trying to accomplish something that, however virtuous we may believe it to be, we have already decided is impossible. Instead, our efforts must be directed to organizing with like-minded others so that barriers that prevent full participation in the economic common good can be eliminated, not raised.

Then, while this was obviously not Belloc's intent, it was clear that the remedy he proposed is manifestly contrary to justice. That is, he advocated imposing disabilities on the rich to bring them down to the level of the poor, rather than lifting barriers that prevent the poor from participating in the economy on the same terms as the rich. Obviously, something that calls itself the Just Third Way necessarily rejects anything that relies on injustice to achieve its ends.

Still, while Belloc's proposed solution would have imposed barriers instead of eliminating them, raising barriers against full participation in the common good is not, in and of itself, contrary to justice. Laws, customs, traditions, and so on, impose barriers all the time in order to define the exercise of humanity's natural rights. While natural rights are inalienable, that is, each human being has the full spectrum of such natural rights as life, liberty, property, and the pursuit of happiness inherent in his or her being as a part of human nature, no one may exercise his or her rights, however absolutely held, in any way that harms another individual, a group, or the common good as a whole — or even him- or herself.

Belloc had it backwards. He was right that the rich enjoy financial advantages that the poor do not. The poor suffer harm through their inability to gain equal access to the means of acquiring and possessing private property: money and credit. The proper course of action, however, is not to inflict harm on the rich to make them "equal" to the poor. Two wrongs do not make a right. Such a program smacks not of justice, but of revenge. Neither can we change the definition of natural rights such as life, liberty, and property in order to justify imposing limits on some, but not on others, or abolishing the right as a natural right.

Instead, the financial institutions of society should be restructured to open up democratic access to money and credit so that the poor have an equal opportunity with everyone else to become rich. The idea is not that the rich should be made poor, or forced to pay for presumed crimes against humanity when they have broken no human law.

Ultimately, the goal of the Just Third Way is to establish and maintain an economically just society. We can define an economically just society as one that meets four essential "pillars" that uphold and protect the dignity of the human person. These four pillars are:

1. A limited economic role for the State. The State is a specialized tool designed to assist humanity in caring for and maintaining the common good. Only in extreme cases or for expedience can we justify using the State to care for and maintain individual goods. The State's role should be limited to providing a "level playing field," enforcing contracts, and policing abuses.

2. Free and open markets as the best means for determining just wages, just prices, and just profits. Humanity's natural right of liberty — free association — means that people should be free and un-coerced either by other individuals or groups, or conditions, to use their personal judgment as to the value of their labor, their capital, and the marketable goods and services produced by means of their labor and their capital.

3. Restoration of the rights of private property, especially in corporate equity. The business corporation, a legally recognized expression of humanity's freedom of association, while designed to make it possible for many people to own a single asset and make the enjoyment of ownership of the means of production more widespread, has been used to concentrate ownership and restrict the rights of minority owners to control and other fruits of ownership, such as their just share of the income.

4. Widespread direct ownership of the means of production. This "pillar" can be regarded as the fatal omission of every economic system in the world today — and the one Belloc directly addressed, although inadequately and with a faulty understanding of the institutions of money and credit.

It is all very well, of course, to say that we want an economically just society, and that an economically just society consists of the four pillars. Nevertheless, despite our great desire, even our need to establish what Belloc variously calls the Proprietary or Distributist State, we must not, indeed, cannot do it by means that contradict the goal itself. We cannot, for instance, take what belongs to one simply because we wish to give it to another. We would thereby destroy property for some for the benefit of others — and make all property insecure in the process. Nor can we change the meaning of "property" in order to achieve the form of our goal but without the substance.

And what is the substance? That Belloc himself accurately identified and defined. As he said (and keep in mind that "ownership" and "control" are the same in all codes of law), "It is obvious that whoever controls the means of production controls the supply of wealth. If, therefore, the means for the production of that wealth which a family needs are in the control of others than the family, the family will be dependent upon those others; it will not be economically free." (The Restoration of Property, op. cit., 14.)

Therefore, in contrast to many so-called proposals today, however, whose proponents assert that people should just not be greedy and should share what they have, the Just Third Way does not go against human nature. Instead, the Just Third Way is designed to act in conformity with human nature, that is, with the natural moral law. That means such inalienable rights as life, liberty, property, and the pursuit of happiness, based as they are on human nature, cannot be ignored or circumvented. Further, humanity being "political" by nature (a combination of individual and social), it makes no sense just to give orders without working to reform our social structures to make doing the right thing optimal or even possible.

For that reason, we have developed an outline for a possible program that, we believe, contains the essential elements of a specific program that will 1) restructure some basic institutions in order to make 2) specific actions possible. We have arranged these points in what we think is the proper order, but that depends on what becomes possible and when we can do it, not any pre-determined rigid program from which we cannot deviate. Also, being human, we may have left something off, and invite your inputs and comments. Before commenting, however, please read the expanded explanation of each point in future postings in this series. It may be that your objection has already been answered or your concern addressed.

1. Reform the Myth of Savings

The fixed belief in the minds of virtually all economists and policymakers today is that the only way to finance capital formation, that is, to invest in new income-generating assets, is to cut consumption, save, then invest. This assumption is utterly false, as was proved by Dr. Harold G. Moulton in his 1935 classic, The Formation of Capital. Louis O. Kelso and Mortimer J. Adler integrated Moulton's findings into a sound program of economic reform in their book, The New Capitalists (1961). The subtitle of Kelso and Adler's book sums up the goal in the most succinct manner possible: "A Proposal to Free Economic Growth from the Slavery of Savings."

2. Reform the Money and Credit System

The fundamental change in our money and credit system is to correct our understanding of "money." Money is not restricted to State sanctioned or authorized legal tender. Instead, money is anything — repeat anything — that can be used in settlement of a debt. If we assume that only the State can issue or authorize money, we necessarily assume total State control over the economy, and thus the imposition of a condition of dependency on every citizen, making each one "a mere creature of the State" — socialism. As Meyer Anselm Rothschild is reputed to have said, "Give me control over money and credit, and I care not who makes the laws."

3. Own the Fed

If State control over money and credit through the wrong definition of money leads to socialism, permitting a private elite to control money and credit through the same means leads to the Servile State — the same destination by two different routes. Thus, in contrast to proposals that call for the abolition of the Federal Reserve System, or turning it over to the direct control of the federal government, we advocate putting the "money power" in the hands of the people most concerned with it: the people. The proper functioning of a central bank is a unique social good that cannot, without grave consequences to individual and the common good, be controlled by either a private or a public elite. We propose that every citizen and legal resident in the region served by the Federal Reserve directly own the Federal Reserve via a single, no-cost, non-transferable share in the Federal Reserve. Through the rights of private property, this would establish the accountability of the money power directly to the people, and eliminate what some have called the dictatorship of money.

4. Reform the Tax System

The national tax system in the United States is a national disgrace. The tax code is gargantuan. No one person can claim to understand the Internal Revenue Code, or even a single section of the Code. That being the case, it makes sense to simplify the system — but only if it can be done in a just and fair manner. We must first keep in mind that the goal of the tax system is to raise the revenue necessary for the proper functioning of the State, not social engineering, or to bolster the power of the elite that happens to be in charge at the moment. We propose, therefore, to eliminate most deductions, increase the exemption for non-dependents to $30,000, for dependents to $20,000, eliminate the payroll tax, merge all taxes into a single rate levied on all income (and we mean all income) above the extremely generous exemption level, and set the single rate at a level sufficient to meet all current government expenditures and pay down the debt within a reasonable period of time.

5. Enact the Capital Homestead Act

The goal is to restore private property "in a Society which has almost forgotten what property and its concomitant freedom means." (The Restoration of Property, op. cit., 144.) Following the lead of Abraham Lincoln's 1862 Homestead Act, the Capital Homestead Act would justly and rapidly open up equal opportunity for every man, woman, and child in America to acquire an equal share of the approximately $2 trillion of new capital formed each year in the United States. This would not be inflationary, because the money needed to acquire the new capital would not be created until and unless a financial feasible capital project was located and properly vetted. This is consistent with the real bills doctrine, that money can be created as needed without inflation as long as the money is linked through private property and created in direct response to and in no greater amount than the present value of new capital formation. Every citizen would use an equal allocation of non-recourse capital credit to acquire capital, repay the loan with the income generated by the capital itself, and collateralize the loan with capital credit insurance paid for out of the "risk premium" typically charged on all loans.

6. Accelerate Private Sector Growth

In order to encourage private sector growth in which all citizens, not just a select few, participate on an equal basis with respect to opportunity, we propose that all dividends be made fully tax deductible at the corporate level, although fully taxable as ordinary income at the personal level. This is because existing accumulations will no longer be necessary to serve as collateral for financing new capital formation, and can be put to use stimulating consumer demand naturally, without induced inflation or redistribution through the tax system. This will, in and of itself, provide the basis for a sound economy in which production and consumption income are equalized, and the economy operates without State interference or manipulation.

This is the barest outline of what needs to be done. In subsequent postings in this series we will examine each of the four pillars and the programmatic points in greater detail. By this means we will overcome the unfortunate weaknesses inherent in Belloc's proposal to restore private property, while at the same time not violate any of our essential principles.

#30#

The Restoration of Property, Part I: Introduction

In 1936 Hilaire Belloc published An Essay on the Restoration of Property (New York: Sheed and Ward). His concern was that a society characterized by the lack of widespread, direct ownership of the means of production is a sick society, one contrary to human nature, and thus ill-suited to providing the proper environment within which human beings can become more fully themselves.

If society continued on its present course of increasingly concentrated ownership of the means of production in either a private elite or the hands of the State — and recall that Belloc was writing in 1936 — the social order would devolve in one of two ways. One, capitalist economies would transform themselves into the "Servile State," described by Belloc in his 1912 book of the same title. Two, socialism and its most aggravated form, communism, would attempt to alleviate the problems caused by concentrated private ownership of the means of production by abolishing private property and making the State the ultimate owner of everything.

Not mentioned by Belloc was the fact that the Servile State as he described it — really, the socialization of capitalism, so well implemented by the virtually global adherence to Keynesian economics — is, in its final stages, the transformation of private capitalism into State capitalism: socialism. The private elite of capitalism and the public elite of socialism merge their interests and become indistinguishable for all practical purposes.

Nor are the other major schools of economics, the Monetarist and the Austrian, any kind of antidote to the Servile State and the ultimate transformation of capitalism into socialism. Monetarism and the Austrian school, operating from within a seriously flawed paradigm, are merely attempts to maintain capitalism in a palatable form, an effort doomed to failure. Whatever their economic theories might tell them, a propertyless majority is politically — and financially — unstable and contrary to essential human nature.

Paralleling Aristotle's paradox about democratic behavior not always being the best or most effective way to maintain democracy (The Politics, V.v), maintaining capitalism requires that capitalism be modified for its own survival. Capitalism will necessarily transform itself into the Servile State because it must incorporate social programs to take care of those perceived as less fortunate and incorporate political aims and goals, or face economic collapse due to insufficient demand to keep the economy running, or political overthrow.

This is consistent with Walter Bagehot's analysis in The English Constitution (1867), and Lombard Street (1873). These are works that, while purporting to support democracy and capitalism, incorporate the totalitarian philosophy of Thomas Hobbes as detailed in Leviathan (1651), generally considered a work whose premises justify socialism.

In The English Constitution, Bagehot redefined "democracy" to mean rule of the British Empire by the "Upper Ten Thousand," the financial and commercial elite of England. This was through the elite's control of the House of Commons, running it as a private business venture. In Lombard Street: A Description of the Money Market, Bagehot explained how the financial and commercial elite control the economy for their private benefit. They base economic control on the redefinition of money put forth by the British Currency School and embodied in Sir Robert Peel's Bank Charter Act of 1844. (Vict. 7 & 8, c. 32.) The ideal arrangement was that imposed by the British East India Company on the Indian subcontinent, and which came crashing down with the Great Mutiny of 1857.

Where Bagehot makes his case that this arrangement of the political and economic orders is all for the best, if not ideal, Belloc describes the same situation in The Servile State, but takes the opposite position. Belloc concludes that "the tendency to the reestablishment of slavery as a necessary development of capitalism is patent wherever capitalism has power." (Hilaire Belloc, The Servile State. Indianapolis, Indiana: Liberty Fund, Inc., 1977, 35.)

Capitalism out of necessity transforms itself into the Servile State. The process involves making the great mass of people completely dependent on the elite for a wage system job, or on State programs instituted to redistribute wealth — often both at the same time. This dependency can be imposed directly, indirectly through the manipulation of monetary and fiscal policy for private or political ends, or via artificial job creation programs that are simply a more complicated and wasteful form of redistribution.

Similarly, socialism must inevitably implement what is often vaguely called "free market reforms." Socialist economies must add a veneer of capitalism in order to gain the somewhat dubious advantage of the restricted exercise of normal and healthy self-interest by a pre-selected elite. Those in charge of the socialist economy thereby hope to gain the ephemeral benefits of controlled competition and a limited profit motive.

At the same time, the vast majority of people remain trapped in a condition of utter dependency and unable to participate in the "new" economy except as subsidized labor and limited consumers. Even in those cases in which a socialist economy officially transforms into a capitalist economy, there is an inevitable backlash and a demand for a return to socialism as the cure for the capitalism that was implemented as the correction of socialism . . . .

The question becomes what to do about this seemingly endless pendulum swing back and forth between the greed of capitalism and the envy of socialism.

#30#

Ride the Pig, or, the Small Error that Leads to Huge Debt

Over the past several days world stock markets have been "plunging" (they never "decline" or "adjust" except in hindsight) in response to the discovery that a number of countries in the European Union have been spending more money than they have been earning. ("EU Searches for Way Out of Debt Crisis," AP, 02/09/10) In more normal times, this is called "Keynesian Fiscal and Monetary Policy." When the bill comes due, however (as it inevitably must), it is called a "crisis" — a manufactured and completely avoidable crisis, but a crisis nonetheless.

What no one seems to understand, however, is that such crises are built in to Keynesian economics, as well as an integral part of Monetarist and Austrian economics and every other system built on the shifting foundation of the tenets of the British Currency School. The bottom line is that virtually all systems of economic thought in the world today use the wrong definition of money.

That is bad enough. Rational thought requires that we define our terms before we can know what we're even talking about — and that these definitions reflect reality. It's all very well for policymakers and academics to insist that a "horse" is an animal with cloven hooves that squeals and yields bacon and ham, and even manage to get their definition inserted into law and the dictionaries. (Significantly, in his Treatise on Money, 1930, Keynes claimed that the State has the power to "re-edit the dictionary," that is, to change reality!)

The problem is that people engaged in real life outside of Wall Street and Beyond the Beltway are convinced that the animal so described is called a "pig." Using the "official definition" of horse is only going to get you into trouble when you attempt to hitch your Berkshire to your buckboard. It might do the job for a while, but sooner or later (usually sooner) the bad official definition is going to cause a problem or two . . . and pigs can get as mean and as vicious as their extremely high intelligence would suggest.

What's worse is that using the wrong definition of money — essentially a purchase order issued by the State or some entity to which the State has delegated the authority — can cause enormously more damage than even the angriest pig. It's not that the definition of money that Keynesians, Monetarists, Austrians and others use is wrong so much as incomplete.

Yes, money can be a purchase order issued by the State and backed by the ability of the State to collect taxes in the future. It's even true that an economy can keep going using this definition of money for quite some time without experiencing a financial meltdown — as long as the private sector manages to remain sufficiently productive to stay ahead of government-induced inflation and punitive fiscal policy that seems custom designed to destroy the ability of businesses to be productive.

The problem is twofold. One, claiming that money can only be a purchase order issued by the State unjustly infringes upon private property and subjects the economy to manipulation for political ends that often fail to address the real need of an economy for a stable medium of exchange and a source of financing for capital formation. Two, State purchase orders are, not to try and whitewash the matter, very bad money.

"Money" is anything that can be used in settlement of a debt, and consists of anything that two or more people freely agree to exchange between themselves. "Good money" is a promise on which the issuer can make good on demand, that is, deliver the wealth that backs the money. "Bad money" is a promise on which the issuer cannot make good on demand, either because he or she doesn't own the wealth that allegedly backs the money, or because he or she has to go collect that wealth from somebody else in order to make good on the promise.

In both of the latter cases, the issuer of the money is making promises that someone else has to keep. Ordinarily we would call that person a "thief." In all schools of modern economics, we call that person "the State."

If the countries of the European Union are serious about solving the debt crisis, they need look no further than the Capital Homesteading program proposed by the Center for Economic and Social Justice ("CESJ"). Detailed in the book of the same title, Capital Homesteading for Every Citizen (2004), Capital Homesteading is built on the common sense assumption that you can't spend what you don't have, and you won't have anything if you don't produce. Thus, if you want a country to have a tax base to support all the social programs, wage and price supports, State salaries and pensions that always look so good when you're voting somebody into office and not so good when it comes time to pay for them, you have to have a productive economy.

Even more than a productive economy, however, you need a productive economy in which all citizens can participate productively — and that means not just as sellers of labor, but as direct owners of the means of production, which has displaced human labor in modern technologically advanced economies as the primary source of marketable goods and services.

This, in turn, means that ordinary people have to have some source of financing to acquire productive capital — and that is where the correct definition of money comes in.

If we insist on defining money solely as a purchase order issued or authorized by the State, we cannot finance new capital from any source other than existing accumulations of savings. This restricts ownership of all new capital to those who already own the capital that is generating the income out of which only the rich can afford to save.

If, however, we use the right definition of money, that is, anything that can be used in settlement of a debt, then anybody can become an owner of capital. All anyone needs is a financially feasible capital project that will pay for itself within a reasonable period of time. Such projects have a "present value." Having value, they can be turned into "money."

This is what a commercial bank is designed to do. A prospective borrower brings a sound proposal with a positive present value to the bank. The bank examines the project and, if it agrees that the project has a present value of, say, $1 million, will allow the borrower to borrow up to that amount. (For simplicity's sake we're omitting the demand for collateral, which can be replaced by capital credit insurance and reinsurance in any event.)

The bank doesn't have $1 million in its vaults. Instead, it prints banknotes or creates demand deposits in the amount borrowed, and takes a lien on the capital project in the amount of the loan. The bank then hands over the cash or (more usually) a checkbook to the borrower. The banknotes or the demand deposit are not backed by cash, but by the lien on the capital project. (Again, for simplicity's sake, we will not get into a discussion on cash reserves, something that a central bank is designed to cover . . . if operated properly.)

The borrower takes this newly created money and invests it in the capital project. The project is completed, and begins producing marketable goods and services. The borrower sells these marketable goods and services, presumably adding on a margin to generate a just profit. Out of the revenues generated by the sale of marketable goods and services, the borrower gives the commercial bank back the money the commercial bank created, thereby buying back the lien on the capital asset held by the bank. The borrower also pays a fee to the bank for providing the service of creating money. The bank cancels the money used to repay the loan, and keeps the fee paid by the borrower as its profit.

The theory behind commercial banking is called the "real bills doctrine." The real bills doctrine is the basic tenet of the British Banking School. All economists who base their understanding of money on the tenets of the British Currency School reject the real bills doctrine. This is because the Currency School does not accept the principles of commercial banking and defines money differently. Thus, they conclude that the real bills doctrine, commercial banking, and central banking, all based on the Banking School, are all, essentially, frauds because they are not based on the Currency School. A pig is a fraud because it is not a horse.

If the financial and political powers-that-be, American, Asian, or even European, want a way out of the self-inflicted debt crisis, they should seriously investigate the claims of Capital Homesteading and the underlying theories of binary economics, and start using the world's financial institutions and systems as they were designed to operate in accordance with reality.

The alternative is to continue to try and saddle a pig. Maybe they can do it, but chances are they're not only in for a very short and very rough ride, they will fail in achieving anything other than being attacked by an enraged pig — and in getting a horse laugh from the sidelines.

#30#

Expanded Capital Ownership Now!

By Guy Stevenson, Guest Blogger

The bottom-up approach problems of social and cultural equality, although important, cannot be solved until the urgent economic problem is successfully disposed of, and the paradigm changed. Only now are some of the "Tea Party Leaders" beginning to realize the priority of the urgent, and how much of the present so-called "Economic Crisis" has grown directly from neglect, by both the Republican and Democrat establishment.

Mindful of their ever present special interest groups — "Corporatocracy," Foundations and Trusts — the bureaucracy continues to offer failed Keynesian approaches. Similarly, it took many minority-group leaders of the "race problem" of the 1960s to face directly the sense of neglect, of the urgent. In a statement issued November 3, 1966, at the Statue of Liberty, the National Committee of Negro Churchmen declared,

The Slaves were freed in 1863, but the nation refused to give them land to make that emancipation meaningful. Simultaneously, the nation was giving away millions of acres in the Midwest and West — a gift marked "for whites only" (Lincoln's Homestead Act). Thus, an economic floor was placed under the new peasants from Europe, but America's oldest peasantry was provided only an abstract freedom. In the words of Frederick Douglas, emancipation made the slaves "free to hunger; free to the winter and rains of heaven. Free without roofs to cover them or bread to eat or land to cultivate. We gave them freedom and famine at the same time. The marvel is that they still live."[1]

The need is urgent, for "they still live" neglected and hungry for a place to call their own. All people (peasantry-propertyless) are hungering for property — for a secure, permanent and independent link with Spaceship Earth that ownership represents and which only ownership can create, protect or defend. It is humiliating to possess nothing, to own nothing and hence to produce nothing and to count for nothing.[2]

You cannot blame the propertyless when a handout is offered and they accept it as charity. Freedom without Property is incomplete. People don't plan to fail they simply fail to plan. Slaves cannot accept any "plantation mentality" solutions. It will not be until ownership is the recognized prerequisite that people can plan from the bottom-up, or they will unknowably accept to fail, and remain in servitude.

"Father forgive them for they no not what they do." In the belief that man's most critical problem in the modern, highly technological world is economic, and that unless he solves the urgent he will never have the chance to confront the inherently important social and cultural issues, let us see how economic planning might help achieve the goals of the theory of "Citizen Ownership" through the Second American Revolution of idea.

A Binary Economic system built upon Ownership and providing a two wage system; of one's own labor and of one's own capital. Citizen ownership is the key to expanded capital ownership, not a hand-out but a hand-up. That is why we urgently call upon all "Tea Parties," all the humble and tireless masses, Americans of African descent, all humbled Native Americans, all American wage/salary slaves, all American debt slaves, all American tax slaves, to join with us for the first truly urgent Capital Homesteading Act and help bring in the Jubilee Initiative for 2012 through instillation in 2019. [3]

"Pass Capital Homesteading Now!" is the next Civil Rights / Pro-Life / Pro-American issue and should be placed on top of the agenda, for "We the People" are interested in regenerating the America Dream of life, liberty and justice for all. The bottom-up approach "Pass Capital Homesteading Now!" must start from those neglected in the past, and the propertyless present, and for the blessing of our posterity the future. Those tired and hungry call for an urgent plan of their own design and with their own hand. The Creator God would have it no other way, but that we should be stewards of all his creation. Some call it "Citizen Ownership."

* * * *

It is axiomatic that those who suffer most from ill-designed economic institutions have the least power to effect change, whereas those having the power are little inclined to correct, or even to question , a system which favors them. All the more credit is therefore due those who do not allow their own personal success to blind them to institutional defects which deny equality of economic opportunity to the majority of their fellow men. Their neighbor, their brothers, their sisters and the citizens of a land they love. — Louis O. Kelso 1967

* * * *

We should be glad and not sorry when a fundamentally wrong notion of which we have been secretly conscious for a long time finally gains a footing in the American Conscience and is proclaimed both loudly and openly. The falseness of it will soon be felt and eventually proclaimed equally loudly and openly. It is as if the stain of cancer has been removed. And then we can get on with civilization itself.

* * * *

[1] Two-Factor Theory: The Economics of Reality — How to Turn Eighty Million Workers into Capitalist on Borrowed Money and Other Proposals — Louis Kelso and Patricia Hetter (pg 118)

[2] Louis O. Kelso and Patricia Hetter, Washington Post, June 18, 1972 — Moral responsibility is born of ownership. Subdue and multiply.

[3] Lincoln's Homesteading Jubilee is 2012 — Not to be confused with the Global Jubilee Initiative. Leviticus 25:10 — "And ye shall hallow the fiftieth year, and proclaim liberty throughout all the land unto the inhabitants thereof: it shall be a jubilee unto you; and ye shall return every man unto his possession, and ye shall return every man unto his family." — KJV. Lincoln's Homestead Act 150th anniversary, 400th year anniversary of the first American slaves.

#30#

News from the Network, Vol. 3, No. 5

Once again this has been a week in which the important news items are those which make for extremely uninteresting reading. Aside from that (and the general panic caused by the impending Worst Snowstorm Since The Dawn of Time) we thought we'd say a little about . . . unemployment.

Within the Keynesian paradigm used by the current administration, there is supposed to be a tradeoff between employment and inflation. If you want to have low unemployment, you have to put up with inflation. If you want low inflation, you have to put up with high unemployment. Of course, according to Lord Keynes, it isn't true inflation until and unless you have reached full employment. Any rises in the price level prior to reaching full employment are, according to Keynes's General Theory, "associated with an aggregate real income." (The General Theory, III.10.ii)

In other words, consistent with Keynes's belief that the State has the power to "re-edit the dictionary" (A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4) — that is, change reality, "inflation" understood as a rise in the price level resulting from more units of currency chasing a quantity of marketable goods and services that have not increased in the same degree as the amount of currency is simply "edited" out of existence. In Keynesian economics "inflation" means whatever Keynes found it convenient to mean — and that means whatever was necessary to support his dogmatic belief in the wage system and the ephemeral goal of full employment, always understood in terms of wage system jobs, not full employment of all resources to reach full production.

Thus we have the misguided focus on "job creation" without first asking whether the jobs are necessary. Artificial job creation is simply a complicated form of redistribution. If employers are given direct cash payments from the State, the money could only come from taxing other people directly and thereby reducing their income, or by inflating the currency by printing money, thereby reducing everyone's real income through the "hidden tax" of inflation by making each unit of currency purchase that much less. If an employer is given a tax credit, that is, a dollar-for-dollar reduction in the tax liability, that simply means other taxpayers must make up the shortfall, or the State must print more money, with the same results as before.

The bottom line is that, unless jobs are created naturally because the labor is needed as an input to increased production, all that is being done is to divide up a shrinking pie into smaller and smaller pieces. Keynes's approach is, ultimately, self-defeating. Unless production increases, you won't need additional labor input, and real aggregate income will not increase: in accordance with Say's Law of Markets, production equals income. Instead, all you will accomplish is to redistribute what already exists.

Because the policymakers are convinced that the Keynesian solution is the only solution, however, the situation can only get worse. Hence we've been seeing an upsurge in panic-stricken articles and commentary by baffled pundits who give us such gems of wisdom as, "The recession is over statistically, but is still going on in human terms." (National Public Radio, Sunday, January 31, 2010.) An Associated Press report posted this morning on Yahoo! carried the depressing headline, "Job Losses from Great Recession About to Get Worse" — and this not more than a week after people were apparently convinced that Mr. Obama's job stimulus program had (once again) saved the day.

Instead, the January unemployment report to be issued today by the Department of Labor is expected to "adjust" the number of jobs lost so far to 8 million. This will have a further depressing effect on the stock market, of course, but even more of an effect on policymakers, who will hasten to demand more artificial job creation. They have finally, after decades of ignoring the obvious, finally realized (at least for the most part) that demand for capital goods is derived from consumer demand: "High unemployment is likely to hold back consumer spending, which has led most recoveries in the past." (Actually, consumer spending has led all recoveries in the past, as Harold G. Moulton demonstrated in The Formation of Capital, 1935.)

The problem that will continue is how consumer spending is financed. If it comes from extending more consumer credit, artificial job creation, or direct redistribution, there may be a brief pseudo recovery, but it will soon fade away. The only way out of the hole is the way no one seems to be looking at: increase productive investment, make certain that the new capital is owned by people who will spend the income generated by the new capital first to repay the acquisition loan and then for consumption, and create the money for the new capital investment by commercial banks extending capital credit secured with capital credit insurance, and establish a 100% reserve requirement by mandating all qualified loans for capital investment be discounted at the Federal Reserve.

While we wait for that to happen, here are the few news items for this week:

• A number of important meetings took place this past week. What made them significant is the fact that each meeting opened up a new avenue to a potential prime mover. This is a graphic demonstration of the importance of being a "door opener" so that word of the Just Third Way can get out to where it will be most effective and do the most good.

• CESJ has asked two important natural law scholars to become CESJ "Counselors." A CESJ Counselor is an individual who supports the aims and goals of CESJ and shares the philosophical orientation of the Just Third Way of economic and social justice. That is, a Counselor is someone who supports CESJ and has a philosophy consistent with that of the philosophy of Aristotle as corrected and refined by Thomas Aquinas, Moses Maimonides, and Ibn Khaldûn. Sheik Dr. Ahmed Mansour is a Quranic scholar and head of the International Quranic Center of Northern Virginia. The Reverend Edward Krause, C.S.C., Ph.D., is a professor of moral philosophy at Gannon University in Eire, Pennsylvania and head of the Central Bureau of the Catholic Central Vereins of America in St. Louis. Both are valued additions to the natural law thinkers who support the implementation and maintenance of the Just Third Way.

• We have made some interesting advances this week, all due to people in the network who gave careful consideration to their contacts and acquaintances and "spent" some of their political capital in order to bring the Just Third Way to the attention of people who have the potential to open doors to prime movers. What we have to realize is that political capital, unlike financial capital, increases when we use it to put prime movers into contact with ideas that not only help the people and improve the common good, but advance their personal careers. We don't lose our "political chips" when we spend them, but increase them.

• As of this morning, we have had visitors from 42 different countries and 45 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Philippines, Brazil, and Ireland. People in China, Australia, Taiwan, Poland, and Venezuela spent the most average time on the blog. "Waiting for the Penny to Drop," the exchange with Rabbi Lerner of Tikkun magazine, and the news items are the most popular postings.

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.

#30#