News from the Network, Vol. 3, No. 16

Early this week during one of CESJ's luncheon discussions this writer commented that the only reason anyone would invest in Greek debt would be in the hope of a bailout or to sell short. News reports yesterday and today would seem to substantiate this view, with Greece asking for a bailout, i.e., asking to borrow more money to get out of debt.

Meanwhile, hours after trumpeting the mega-colossal terrific, never-before-seen good news that home sales were turning around and ending the recession — again — ("New Home Sales Jump from Record Low," Associated Press, 04/23/10), we received the news that "Stocks Mixed as Gains from New Home Sales Fade" (Associated Press, 04/23/10). As the article stated, "early gains from a strong report on new home sales mostly dried up by late morning. Mixed news from earnings reports and Greece's decision to trigger a bailout package kept the market in check."

Meanwhile, back at the ranch, a growing number of Federal Reserve officials, evidently convinced that "America (and the housing market) is Back!" (see last week's "News from the Network"), are talking about divesting the Federal Reserve of its holdings of mortgaged-backed securities ("Several Fed Members Favor Selling Mortgage Assets Soon," CNBC, 04/23/10). Within the current economic and financial framework far removed from the common sense of binary economics, a sell-off would drive up interest rates and depress the housing market, triggering inflation and stalling the recovery. Of course, if the Federal Reserve were to do the rational thing, and sell off its holdings at the real fair market value to Homeowners Equity Corporations by taking back no-interest paper, the problem might solve itself.

Meanwhile, back in the world defined by the "economics of reality,"

• Last week's "News from the Network" was posted before the Second Social Justice Collaborative and the CESJ Annual Celebration took place. We are now in a position to report that both went very well. Additional reports filtered in regarding last Thursday's "Rally at the Fed." The general consensus of the participants was that the Rally was the most successful to date.

• The Second Social Justice Collaborative was a little slow getting started, but once it got moving several key people made definite commitments to reach specific goals, all of which are geared toward enactment of the Capital Homestead Act by 2012, the sesquicentennial of Abraham Lincoln's 1862 Homestead Act. A (free) light lunch was provided, "hunter's macaroni" (penne rigate with tomatoes, mushrooms, and garlic) and a green salad, fueling people adequately for the more active afternoon session. The focus is on getting doors opened to "prime movers," with President Obama being the primest of movers.

• The CESJ Annual Celebration the following day, Saturday, April 17, was also extremely successful, even without allowing for the fact that many participants were beginning to fray a little at the edges from the intense level of activity, both preparation for and participation in the events. The business meeting took place in the morning, during which commitments made the previous day were renewed and confirmed, with some specifics being filled in. News items and non-business reports were to be deferred to the afternoon, but after the meal of Syrian cuisine provided by O'Connor Catering, informal discussion of aims and goals replaced the formal agenda.

• Rudy Wroble, a long-time CESJ member, located a high school economics text from 1928. Perhaps not surprisingly, the book treats very seriously some subjects, such as Say's Law of Markets, that modern texts ignore or dismiss completely. Going through the discussion in the book it becomes evident that the increased role of the State, which accelerated phenomenally as a result of the New Deal, is largely responsible for much of what has happened in the past eighty years, economically speaking. The State has taken on so many new duties and is trying to do so much that it has reached functional overload. The result is that even the State's proper, if limited functions are not being carried out, even inadequately. The book is currently on loan to CESJ.

• On Thursday we received a telephone call from a woman from Zambia who was investigating various programs for adoption by a candidate for public office in that country. Coming across the CESJ website, she immediately realized that Capital Homesteading has the potential to turn things around for Zambia. She is currently looking over the material on the website, especially the "parallel legal system," and will be working to arrange a meeting between the candidate and Dr. Norman Kurland.

• Research for the current "Own the Fed" series has uncovered some interesting data. For example, the Bureau of Labor Statistics released two unemployment rates for March of 2010: the official 9.7% rate, and the "real" rate of 17.5%. Added to this is the fact that the percentage of the population included in the "labor force" has increased greatly since the Great Depression. As one small example, according to the Census Bureau, the proportion of women in the labor force in 1930 was 24%, while in 2000 it was 61%, a 250% increase. What does that mean? A crude calculation to try and compare the 17.4% unemployment rate in September of 1932 with the 17.5% unemployment rate in March of 2010 gives us an unemployment rate for March of 2010 of 19.95% in 1930s terms. (According to the Census Bureau, in 2000 women made up c. 46.5% of the labor force. Multiplying 17.5% times .465 and then by 2.5 gives us 19.95%.) In 1933, the worst year for employment during the Great Depression, the unemployment rate maxed out at 24.9%.

• Since we're looking at Scary Statistics That People Think Are Good, in September of 1929 the Dow hit a then-time high of $381.17. At the worst of the Great Depression, the Dow was down to $41.22. It didn't recover its pre-Crash level of $381.17 until the mid-1950s, a full quarter century, recovering to 83% of its former level by 1954. In comparison, the Dow reached a high of $13,390.01 in October of 2008, falling to $7,062.93 by March of 2009. This morning, the Dow was at $11,145 — an astonishing recovery!! America is saved!!! The Dow took a little over a year to recover 83% of its former high, doing what it took those poor jerks of 1930-1955 twenty-five years to accomplish!!!(!). Further, Federal Reserve authorities and government officials as well as Wall Street pundits and academic economists assure us this is not a speculative bubble! The megadollars pumped into bailing out failed gamblers and speculators and into price supports and subsidies for toxic assets had absolutely no speculative effect! It would be interesting to find out if Mr. Bernanke, President Obama, Mr. Geithner, Mr. Paulson, et al., have read Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds (1841). Just a suggestion.

• As of this morning, we have had visitors from 45 different countries and 49 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, Australia, and Brazil. People in Venezuela, Guatemala, Maldives, Pakistan and Rwanda spent the most average time on the blog. The most popular posting, appropriately enough, is "Kemp Harshman, Soldier of Justice," followed by "Thomas Hobbes on Private Property," Guy Stevenson's "Expanded Capital Ownership Now," "Full Employment" in the "Own the Fed" series, and "The Great Society," also in the "Own the Fed" series.

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.

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Own the Fed — the Program, Part VII: The Case for Capital Homesteading

Despite all the hype (or, possibly in some measure, because of it), the economy has not recovered from the Great Recession. On the contrary, notwithstanding the phenomenal recovery of the stock market in less than a year (recovery of the market after the Crash of 1929 took more than twenty years to reach previous levels), the economy, and thus the whole of the social order, is in very bad shape indeed. If nothing else, the remarkable slowness of the recovery for those sectors of the economy not directly tied to Wall Street is a very unsettling phenomenon.

Part of this, of course, may be due to the massive increase in government spending. Just as in the 1930s, when borrowing (and thus money creation) by the federal government increased phenomenally, (Harold G. Moulton, Capital Expansion, Employment, and Economic Stability. Washington, DC: The Brookings Institution, 1940, 32-37), industry, commerce, and agriculture are starved for capital credit. This is especially true when lending institutions assume that bank credit is a commodity in limited supply, and require existing accumulations of savings and investment as collateral. When the government seems to be using up the "supply of loanable funds" at a tremendous rate, the assumption is that there is nothing left for the private sector. This is not true, but it makes no difference if people, especially policymakers and Federal Reserve authorities believe it to be true.

Then there is the plight of the ordinary wage worker — which in today's society, characterized by enormous concentrations of wealth, means the vast number of Americans. A quick glance at the "official" versus "real" unemployment rate — the leading economic indicator closest to the knuckle for most of us — is revealing. In March of 2010, the "official" unemployment rate posted on the website of the Bureau of Labor Statistics was 9.7%. In another part of the website, the real unemployment rate was given as 17.5%. (http://www.bls.gov/cps/) In September of 1932, the unemployment rate without the various redefinitions and adjustments essential for the peace of mind of today's politicians was 17.4%. Further, both the "official" and real employment statistics fail to take into account three very important factors.

One, the unemployment rate only includes those people who are seeking wage system jobs. In the 1930s, there was still a significant population of small owners. Since that time, small ownership has become a most unusual exception, while making a living without having a wage system job is almost unheard of today. The common perception among a great many people in our day and age is that "self employed" is a euphemism for "unemployed."

Two, the 1960s saw a great many women enter the workforce. In the 1930s it was still unusual for a woman to work outside the home, despite the "sex change" seen in a number of occupations due to the drain in the number of men available for work in the private sector as the country mobilized for war in 1916-1917. The Second World War saw even more women enter traditionally male occupations, although this was seen as temporary at the time. The shift did not become permanent until the 1960s, vastly increasing the size of the labor force, and for a time reviving interest in the discredited "wage fund doctrine" to try and explain why single-income families were not able to make it financially. (Within the analytical framework of binary economics, the inability for a single wage-earner to support a family is not due to a fixed "wage fund" being spread out among an increasing population of workers. The lowering of real wages results from a decline in the value of human labor relative to capital in the production process. This forces more people in the family to enter the workforce in order to maintain an adequate level of income.)

Three, the objective numbers of people included in the unemployment rate is far greater than it was in the 1930s. Part of this is due to the increase in population, of course, but the proportion of the population relying exclusively on wages for an income (one) and the addition of women to the workforce (two) is also significant. In order for us to compare the 1932 unemployment rate to the 2010 unemployment rate accurately, we would need to adjust the 2010 unemployment rate by some factor to allow for the additions in one and two. This, however, is outside the scope of this survey.

The real problem, however, is that the authorities and various experts and cheerleaders are looking at the wrong sector of the economy. Virtually all effort — to say nothing of a few trillion dollars — has been channeled into bailing out failed gamblers and speculators on Wall Street. Almost nothing has been done to "create jobs." Instead, another trillion-dollar hit is in the offing for American business in the form of the projected costs associated with the new healthcare mandate. Adding costs of such magnitude to businesses already in trouble has the potential to drive companies out of business, force them to shift to cheaper labor in other countries, and — for those able to do so — accelerate the changeover to technology that doesn't belong to unions, doesn't vote, and can be scrapped or sold when it wears out, breaks down, or becomes obsolete.

Of course, emphasizing job creation begs the question. Should we, in fact, be trying to redistribute or divert wealth by maintaining people in jobs everyone knows are pointless? Or should we restructure the system so that those same people can own the machines that produce the bulk of our marketable goods and services?

Still, efforts to create jobs, however ill-conceived, are at least well-intentioned, and not obviously directed toward feathering the nests of revolving door opportunists. At best, job creation is a complicated way of redistributing production which nevertheless acknowledges, however watered-down, the importance of producing before redistributing. What is needed is some program that will open up ownership opportunities in a way in which every man, woman, and child in the United States and, eventually, the world can share in economic growth.

Yes, things are very, very bad, but they could be much worse. Regardless how bad matters get, if there is a viable plan — and there is one — it is always possible to turn the situation around.

Any plan should not, however, be designed to address an emergency situation alone. Aside from the fact that any emergency presents special problems of its own, people always have the temptation to take a program designed for an emergency situation and try to keep in place permanently, or to apply it to ordinary, rather than extraordinary situations.

Take, for example, the wage system. As Ryan pointed out in his landmark study A Living Wage (1906), the wage system presupposes an extremely artificial condition of society: one in which the vast number of people own no appreciable amount of capital, and are forced to subsist entirely on wages paid in exchange for selling labor. The natural way to gain a living income is to work with what you own, so that the income generated by both capital and labor flow to the person most directly responsible for production.

As Kelso and Adler explain in The Capitalist Manifesto, however, that which ordinarily gives the right to the income generated by either labor or capital is private property in the means of production. As the authors explain, "It is only through his productive property — his capital instruments or his labor power — that a man can participate in the production of wealth as an independent contributor. The slave whose labor power is owned and used by his master is not an independent contributor; hence he cannot, as a matter of strict justice, claim any share in the distribution of the wealth produced." (The Capitalist Manifesto, op. cit., 53.)

If human labor is the sole factor of production, then the laborer (unless he or she is a slave) is due all marketable goods and services produced. If capital is the sole factor of production, then the owner of the capital is due all marketable goods and services produced. If both labor and capital are factors of production, then the marketable goods and services produced (or, more accurately, the profits generated by sale of the marketable goods and services) are divided between the owners of labor and of capital, respectively, on the basis of the relative value of the inputs.

Since it is difficult to impossible to determine the physical ratio of what the human factor and the non-human factor contribute, this is best determined by paying labor the going market rate, with the owner(s) of the capital retaining any profits. This is not perfect, of course. If a marketable good or service generates a loss rather than a profit, labor still must be paid the agreed-upon price instead of sharing in the loss; "labor" and "capital" must work together, but they are not true partners unless the same individual contributes both labor and capital.

We've examined today's situation at some length, and concluded that with regard to its institutional structures the country is probably in worse shape than it was during the Great Depression. Further, the groundwork has been laid for a financial and economic meltdown from which there will be no recovery — if we limit ourselves to traditional "solutions."

Obviously the country is in a state of emergency. That being the case, a redistribution of wealth may be necessary in the short run — meaning less than a year — in order to keep people alive and healthy in a manner otherwise consistent with the demands of human dignity. That, however, is only a tolerable expedient as long as the emergency lasts. When a program of redistribution lasts longer than the emergency, or an emergency is artificially prolonged by keeping people dependent on redistribution for their subsistence, it becomes unjustified, even tyrannical — the establishment and maintenance of the Servile State.

Since, as we have seen, the current emergency is clearly artificial, refusal to implement necessary correctives at the earliest possible moment would be classified as tyranny . . . if policymakers were aware of a program consistent with the principles of the Just Third Way. As long as they remain in honest ignorance, however, we must continue working to bring a just solution to their attention.

This raises the question of what constitutes a just solution. It must, of course embody the "four pillars of an economically just society" we have already mentioned. Briefly, these are 1) a limited economic role for the State, 2) free and open markets, 3) restoration of the rights of private property, and 4) widespread direct ownership of the means of production. That being said, what are some of the specifics of a program?

To answer that question, we have to begin at the beginning — with production, where everything starts. In less economically depressed times, productive capital in the U.S. economy increases annually in both the public and private sectors at a rate of approximately $7,000 for every man, woman and child. If financed in the usual way, that is, in a manner consistent with the dogmatic beliefs of the Currency School, virtually all of this new capital ends up being owned by those who already own (or, increasingly these days, control without owning) existing accumulations of savings. Few if any new owners will be created by means of traditional financing methods and assumptions.

This circumstance has led to a growing wealth gap. Most people own nothing or virtually nothing in the way of income-generating assets. They are completely dependent on their wage system jobs, welfare, or charity to meet their subsistence needs. Even in a dire emergency, many people have no financial resources, even home ownership, on which to survive.

A proposal we call "Capital Homesteading" is designed and intended to remedy this deplorable situation. Capital Homesteading does this in a manner consistent with the natural right to private property, free market competition, and limited government intervention to emphasize voluntary choices among producers and consumers. Capital Homesteading works to lower or remove barriers to full participation in the economic common good.

The goal is to open up the means by which those who do not own income-generating assets can become capital owners — but without taking anything away from current owners, except for the monopoly current owners now enjoy over future ownership opportunities. In common with Abraham Lincoln's 1862 Homestead Act, Capital Homesteading is directed toward a frontier, but the capital frontier. The capital frontier, unlike the land frontier, is effectively unlimited. Capital Homesteading has the potential to restore the American Dream of liberty and justice for all that a century and a half of poorly structured financial institutions and unsound monetary policy has eviscerated.

The basic structure of the Capital Homesteading proposal is an integrated system of income, gift, retirement, and inheritance tax reforms. Most importantly, tax reforms are combined with changes in monetary policy — even a change in our essential understanding of money, credit, and banking — that will effect fundamental changes in national economic policy. The goal of Capital Homesteading is to provide every man, woman, and child with an equal opportunity to own, control, and enjoy the profits generated by ownership of productive capital.

This is where Capital Homesteading becomes incomprehensible to anyone locked into the assumptions of the Currency School. The basic assumption of the Currency School is that capital formation can only take place after cutting consumption, saving, then investing. This is an absolute dogma — even though it begs the question as to where the first production came from if cutting consumption must take place before saving and investment . . . and production.

Politically or economically there is no reason why those who currently have a lock on capital ownership should be the only ones who own capital. We have seen that the State does not create money (not legitimately, anyway), and, with more than half of the money supply provided directly by the private sector in the form of promissory notes and similar instruments, it cannot claim to control the whole of the money supply. The State, however, does have an essential role to play in regulating the value of the currency and enforcing such standards as will ensure its stability. This is the same responsibility the State has to set the standards of weights and measures and ensure that everyone adheres to those standards.

Money and credit are thus uniquely "social goods" to which everyone should have access as long as they meet certain minimal requirements, just as they would in registering to vote. Obviously, the primary requirement would be a property right in the present value of existing or future marketable goods and services, but there would necessarily be other requirements as well, such as access to collateral in the form of capital credit insurance, good character, and so on.

The fact is that a political democracy cannot long survive conjoined with an economic plutocracy, especially when the authority of the State is thrown behind the economic elite, supporting it and providing a foundation for its continued ascendancy. Only decentralized wealth — and decentralized control over and access to money and credit, the chief means by which ownership is acquired — can counter the corrupting influences of today's intensely concentrated wealth. The State should therefore assist in lowering barriers that inhibit or prevent access to capital credit, thereby fostering the creation of more wealth through extension of capital credit and tax incentives for investment.

The mechanics of Capital Homesteading are, in general terms, simple and straightforward. This is due to the fact that binary economics accepts the principles of the Banking School. This means that banks can extend credit and create money by backing new demand deposits, promissory notes and other financial instruments with the present value of existing and future marketable goods and services instead of with existing accumulations of savings or government debt. Capital Homesteading avoids the circumlocutions and invalid arguments that adherence to the tenets of the Currency School requires as a matter of course.

As the central bank of the United States, the Federal Reserve has the power to monetize capital credit extended for qualified industrial, commercial, and agricultural purposes. That is, just as a commercial bank can create money without the necessity of existing accumulations of savings for its customers by discounting qualified loan paper, a central bank can create money without the necessity of existing accumulations of savings for commercial banks by rediscounting qualified loan paper of its member banks, or by purchasing qualified private sector loan paper and other negotiable instruments on the open (secondary) market.

Financed by the ability of the commercial banking system and the Federal Reserve to create money as needed without inflation or deflation (an "elastic currency," see § 1 of the Federal Reserve Act of 1913), every citizen would establish a tax-sheltered "Capital Homestead Account," or "CHA." Each "Capital Homesteader" would purchase and accumulate corporate equity shares or their equivalent that convey the full rights of ownership, such as full payout of profits in the form of dividends and full voting rights.

While it is unlikely that most people in the first generation of Capital Homesteaders would reach this amount, the CHA ceiling should be set at a generous $1 million. At a good ROI (Return on Investment) of 20%, this would provide an individual with $200,000 of disposable income out of which to meet all expenses and pay all taxes. Taxes, of course, would decrease overall as the $2 trillion in entitlements embedded in the federal budget was reduced as people became able to meet their own needs themselves.

In order to make access to ownership of the means of production truly democratic, no one would be required to finance the acquisition of capital using existing accumulations of savings. No one would have to use out-of-pocket cash, whether directly by using existing savings to purchase assets, or indirectly by using current accumulations as collateral — the more common use of existing accumulations.

It is critical to note that, contrary to the assumptions inherent in the tenets of the Currency School, no money is created until and unless capital with a present value is presented for financing. The fixed assumption of Currency School adherents, based on the dogma that only existing accumulations of savings can be used to finance capital formation, is that money is first created, then invested. This is only the case when government tries to monopolize "available" credit — the presumed "supply of loanable funds" — and collaborates with the central bank to create money backed by government debt. This is spent into the economy, presumably providing the reserves necessary to increase the money supply, but in reality giving the State tremendous influence in determining who owns what, and, especially, who may own at all.

Federal Reserve authorities would make a conservative estimate of the anticipated new capital needs for the upcoming quarter. This amount would be divided equally among citizens and legal residents and a voucher issued for capital credit in that amount. Again, this voucher would not itself be credit, but the right to obtain credit if the Capital Homesteader could locate a financially feasible capital project with a present value.

The Capital Homesteader would obtain a no-interest, non-recourse loan through his or her CHA for the purchase of a qualified investment. "No-interest" does not mean "free," however. There would be a one-time transaction fee for discounting the loan at the commercial bank, an annual risk premium for the purchase of capital credit insurance for collateral to secure the unpaid balance of the loan in the event of default, and the Federal Reserve discount rate to cover the cost of creating the money and administering the system.

All shares purchased for CHAs would include a "full payout" provision. That is, all earnings attributable to those shares would be paid into the CHA. To encourage full payout of all earnings (whether or not attributable to shares in a CHA), dividends would be tax deductible at the corporate level. If not used to make debt service payments for shares in a CHA, all dividends would be taxed as "ordinary income" at the individual level.

The proceeds of CHA loans could be invested in shares of: 1) the company where the citizen or a family member works, directly or through an ESOP, 2) the companies in which the citizen is a regular customer or supplier, and 3) a variety of blue-chip growth companies with a proven track record of profits.

To encourage CHAs, a "National Capital Credit Association" (NCCA) would be set up, to do what, e.g., Fannie Mae and Freddie Mac were intended to do in facilitating and securitizing home mortgages. The NCCA, which should be owned and controlled by CHA lenders and citizens, would package insured CHA loans, create software for helping lenders to scrutinize the feasibility of CHA loans, and set uniform standards for CHA insurers, reinsurers, and lenders.

The NCCA and competitors qualified by the Federal Reserve would then bundle and take these securitized CHA loans to the "Discount Window" of the regional Federal Reserve Bank. The Federal Reserve would treat these insured dividend-backed securities (DBSs) as it currently treats government debt paper, using them as backing for the currency as originally intended in the Federal Reserve Act of 1913. This would have the added benefit that as the Federal Government pays down the national debt, the productive assets of the private sector would stand behind the nation's money supply, whether coin, currency, or promissory notes and other financial vehicles.

A money supply linked to productive capital owned and controlled by the citizens would replace gold as a measure of value, and act as a safeguard against inflation and irresponsible or non-democratic monetary and fiscal policies by the nation's leaders and central bankers. Under Capital Homesteading, money will again be a servant of the people, not their master, and will become an instrument to promote humanity's creative potential and quest for a just market economy.

For the purposes of this survey, the next question is what specific reforms are required in order to implement Capital Homesteading at the earliest possible date and lay the foundation for a solid and sustainable economic recovery.

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Own the Fed — the Program, Part VI: Hitting the Pavement

There's an old joke about a man who fell off of a skyscraper. As he passed each story on the way down, people asked him how things were going. Being someone who could clearly put the best spin on the situation, he replied, "Doing all right so far." We assume that these optimistic utterances stopped when his head met the pavement.

That response pretty much describes the "cautious optimism" we see exuded by economists and policymakers regarding the current alleged recovery from the Great Recession. Grossly inflated share values, short selling, and manipulation of derivatives provided the trigger for both the Great Depression as well as today's economic downturn. In response, the whole thrust of the Federal Reserve and the federal government in union with Wall Street has been to re-inflate share values, short sell toxic mortgage-backed securities to the Federal Reserve, and manipulate derivatives.

Consequently, despite all the hype over the announced "end of the recession" in July of 2009, there has been a rapid growth in distrust of the federal government (Liz Sidoti, "Poll: 4 out of 5 American's Don't Trust Washington," Associated Press, 04/19/10), and widespread rejection (Meghan Barr, "Recession is Ending? Some Americans Don't Buy It," Associated Press, 04/19/10) of claims that the country has turned itself around (Daniel Gross, "The Comeback Country," Newsweek, 04/09/10). Apparently, mindless faith in the word of the elites, whether political, economic, or academic, isn't what it used to be. People are starting to demand substance — and they are evidently becoming convinced that the State is not the institution to deliver it. The experts and the politicians who rely on them may finally have hit the pavement.

Nor is this an unexpected development from within the framework of the Just Third Way. As we have already seen in this series, many of the assumptions used by economists and policymakers contradict "the economics of reality." (Louis Kelso, Two-Factor Theory: The Economics of Reality. New York: Random House, 1967.) With the State claiming the power to change reality ("re-edit the dictionary," as Keynes called it in his Theory of Money), to say nothing of the alleged right to control all financial transactions and determine the terms of all contracts (ibid.), common sense, to say nothing of rational self-interest, was apparently relegated to the dustbin of history long ago. That being the case, it becomes almost a holy duty — and some would delete "almost" — on the part of the economic and political elites to violate every one of the "four pillars of an economically just society," based as these pillars are on the inherent dignity of every human being:

• A limited economic role for the State,

• Free and open markets as the best means for determining just wages, just prices, and just profits,

• Restoration of the rights of private property, especially in corporate equity, and (the "fatal omission" of every major economic system in the world),

• Widespread direct ownership of the means of production, individually or in free association with others.

The institutions of society have been distorted and the barriers have been raised against the great mass of people participating in the vast network of institutions that we call the common good. This is especially true for those institutions relating to the financing of capital formation. Nor is this an unexpected development. The State's role in the economy and in everyday life has increased dramatically since the end of the American Civil War. Ironically, this accelerated with the virtual government takeover of the Federal Reserve System in the early 20th century. The Federal Reserve is an institution specifically designed to de-concentrate economic power in the private sector without recourse to State control. (U.S. Congressional House Committee on Banking and Currency, Report of the Committee Appointed Pursuant to House Resolutions 429 and 504 to Investigate the Concentration of Control of Money and Credit, February 28, 1913. Washington, DC: U.S. Government Printing Office, 1913.) The Great Depression provided the State with the leverage it needed to extend its control even further through the New Deal.

The Great Recession has provided the opportunity to complete a State takeover of virtually every aspect of human life, so that "no one can breathe against their will." (Quadragesimo Anno, 1931, § 106.) Ostensibly this has been to protect the free market and capitalism by saving companies and industries "too big to fail." This is a claim tantamount to an admission of socialism. The result has been to concentrate control over both economic and political power in a bizarre union of the federal government and an economic elite composed of experts in gambling, speculation, and manipulation of the financial markets.

Not surprisingly, this arrangement bears a striking resemblance to the situation Walter Bagehot described in The English Constitution (1867) and Lombard Street (1873), and which was philosophically aligned with the totalitarianism described by Thomas Hobbes in Leviathan (1651). As far as Hobbes and Bagehot were concerned, the State in the person of the sovereign may be the ultimate owner of everything (Leviathan, op. cit., XXIV), but the financial and commercial elite control the country (The English Constitution, Chapter II: "The Monarchy"). The situation is analogous to that described by Pope Pius XI in 1931 when he noted that wealth and power are greatly concentrated, so much so that the financial elite can be termed an "economic dictatorship." (Quadragesimo Anno, op. cit., § 105.)

The aims of a free people, and those of a financial and political elite unaccountable to anyone are necessarily different, if not inevitably at permanent loggerheads. By controlling the Federal Reserve and diverting its money creation powers from meeting the needs of the private sector, to financing government, the federal government — the political elite — has become unaccountable to the people. This is as Henry C. Adams predicted. (Henry C. Adams, Public Debts, An Essay in the Science of Finance. New York: D. Appleton and Company, 1898, 22-23.)

By controlling the federal government and persuading the political elite (to say nothing of the incestuous relationship that has developed between the financial elite and that of the State), the "economic dictatorship" has become virtually unaccountable to anyone. This is best exemplified by the repeal of the Banking Act of 1933 ("Glass-Steagall"). Repealing Glass-Steagall substituted subjective opinion and expedience in the determination of whether ethics had been violated or even a crime committed, for the objective facts ascertainable from circumventing systemic internal controls of the financial system.

The effect was to take away the ability of the financial system to regulate itself, with the State stepping in only when individual violations occurred or the system itself needed reform that it could not handle itself. Removal of internal controls put in its stead direct State oversight and control, and the opinion of bureaucrats with extremely interested motives as to whether something was "wrong," or must be tolerated in order to maintain the current elite in its wealth and power at the expense of ostensible owners and the taxpayer.

Private property in the form of share ownership, or even the quasi- or secondary ownership of a creditor was rendered meaningless. Private property was abolished to preserve capitalism, while "freedom" is an effective nullity. As William Cobbett noted, "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. (William Cobbett, A History of the Protestant Reformation in England and Ireland, 1827, §456.)

In consequence, while many authorities today presume the increasing wealth and power gap to be of great benefit to society (John Maynard Keynes, The Economic Consequences of the Peace, 1919, 2.III), it is actually a symptom of serious social, economic, and political disorder. That is why we have seen the "American Dream" shift from owning an adequate if modest stake of productive assets — usually in the form of a farm or small shop or factory — to having a good wage system job and owning a house, to, finally, having a claim on State assistance with ownership of nothing. Nowhere is this more evident than in the recent spate of articles calling home ownership into question, highlighting the "dangers" of home ownership and extolling the condition of dependency — economic slavery (e.g., Paul R. La Monica, "Renting: The New American Dream?" CNNMoney.com, 04/15/10).

Over the past eighty years or so, home ownership has been considered the chief means by which ordinary Americans build a moderate stake of wealth. This is largely psychological, for a home does not generate a stream of income, while the gains realized from the sale of a home are usually due either to inflation or speculation. Home ownership is not a substitute for direct ownership of capital assets that generate a stream of income for the owner. Nevertheless, direct ownership of a valuable asset that can be liquidated as a last resort is infinitely preferable to a pile of rent receipts.

Even this, however, is under attack. The elites with their increasing concentration of wealth and power in fewer and fewer hands cannot seem to abide anyone else having anything. The great mass of people exists not even to serve, for human labor has been diminishing in value relative to technology for some time. Instead, "consumers" exist only to spend and (within acceptable limits) consume — and to spend by any means necessary to increase the wealth and power of the elites.

The ideal situation, of course, is for "consumers" (rarely "people") to spend without consuming, and for savers to invest without producing, an arrangement implicit in Keynesian economics. Keynes ignored production, the purpose of which is consumption, as Adam Smith pointed out in somewhat obvious fashion more than two centuries ago. Instead, Keynes concentrated on stimulating "effective demand." In the special language of economists, "effective demand" does not mean the wants and needs of people for marketable goods and services, but the ability to buy marketable goods and services — purchasing power. Whether people receive value for their purchases is irrelevant, as long as they spend.

Behind the triggers of the Great Recession as well as the Great Depression was this desire to get something for nothing. Speculation on Wall Street in the 1920s produced nothing, and yet seemed to yield tremendous profits — for a while. More recently we had the sub-prime mortgage bubble and the "collateralized debt obligations" that, combined with hedge funds, allowed investment banks joined with commercial banks and insurance companies to profit from both gains and losses. This arrangement ensured that investors would lose billions no matter what happened — to expend enormous amounts of "effective demand" without receiving any benefit in return. The "economic dictators" were able to make immense profits without having to go through the drudgery of actually having to produce a marketable good or service. (Rick Newman, "How Goldman Sachs Might Help Democrats in November," U.S. News and World Report, 04/16/10.)

The problems associated with what we can only regard as an unholy union of private and public sector elites are becoming obvious to some commentators, even in the halls of those normally dedicated to the maintenance of the new status quo. In the Wall Street Journal, Gerald P. O'Driscoll, Jr., relates the collusion of private sector interests and the State elite that has resulted in a phenomenal growth of State power, and all to support the interests of an extremely small economic dictatorship. As O'Driscoll reports,

On April 5 of this year [2010], The Wall Street Journal chronicled the revolving door between industry and regulator in "Staffer One Day, Opponent the Next."

Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. The interests of industry and government become intertwined and it is regulation that binds those interests together. Business succeeds by getting along with politicians and regulators. And vice-versa through the revolving door.

We call that system not the free-market, but crony capitalism. It owes more to Benito Mussolini than to Adam Smith. ("An Economy of Liars," WSJ, 04/20/10, A21)

Nevertheless, a significant part of the problem is not regulation itself, but the type of regulation. The free market requires not endless lists of rules and regulations promulgated by bureaucrats and politicians with an eye toward their eventual profit, but limited State involvement directed toward establishing and maintaining a "level playing field." That necessarily means an anti-monopoly and pro-competition stance on the part of the State. The free market must structure itself, even if limited State assistance is required, not be "structured" by arbitrary and sometimes incomprehensible State action. The goal is to maintain adequate internal controls that prevent, not simply forbid, collusion between institutions and departments with incompatible functions such as investment banks, commercial banks, and insurance companies. As O'Driscoll points out in a passage that could have come straight out of a textbook on auditing,

The idea that multiplying rules and statutes can protect consumers and investors is surely one of the great intellectual failures of the 20th century. Any static rule will be circumvented or manipulated to evade its application. Better than multiplying rules, financial accounting should be governed by the traditional principle that one has an affirmative duty to present the true condition fairly and accurately — not withstanding what any rule might otherwise allow. (Ibid.)

Fair and accurate presentation of the financial position of an entity, of course, relies absolutely on a sound and effective system of internal control, as any second year accounting student can tell you. It's not enough to order the receivables clerk not to authorize or make disbursements. You must separate receivables from payables — period. There is, as O'Driscoll states, always a way to circumvent even the most strongly expressed and stern rule or regulation, even one with horrifying penalties attached. The temptation is simply too great for some people, especially in our morally ambiguous society, not to write out that check to him- or herself (or in payment of a false invoice sent from a P. O. Box owned by a fictitious company with all receipts automatically transferred from a lockbox to a numbered bank account in the Cayman Islands or Lichtenstein).

Nor is enforcing external rules the answer. From experience, this writer knows that often a company will quietly let a criminal go free rather than expose itself to the bad publicity a scandal would bring. The loss of a few hundred thousand, or even millions of dollars is nothing to the cost of the damaged image and the expense of an effective prosecution — something of which clever criminals are well aware.

Of course, eventually such slackness catches up with you. The Catholic Church, for example, is now reaping what it has sown for trying to protect itself by putting a false mercy and a very real expedience before justice and truth. This says nothing about the validity of the teachings of the Catholic Church, of course — the Church's "system." It does, however, say a great deal about the frailty and need for correction of its human agents, as Pope Benedict would be the first to admit.

The State and the financial community have no such out. Revolving door opportunists cannot claim to be protecting a divinely established, if human-maintained institution, regardless what political, social, and economic theories they may have imbibed through Sir Robert Filmer (Patriarcha, or, The Natural Power of Kings, 1680) and his disciple Hobbes. On the contrary, not only has it become painfully obvious that the economic dictators known as crony capitalists — "an economy of liars" — are running the system for their own private advantage, they have manipulated a system that started out with some serious flaws in the first place. Instead of removing barriers that inhibit or prevent people from entering the market and carrying out economic activity on a level playing field with the same (and, hopefully, minimal) rules for everyone within a system that makes sense, they have industriously erected more barriers, and invented increasingly complex and baffling "financial vehicles" to obscure what they are doing.

It is simplicity itself to restructure the system to your own advantage when you control the State and have a population that labors under the delusion that the State can do anything, even change reality. You need merely pass a law. If that doesn't work, pass more laws. If that doesn't work (and it won't), have the State take over . . . under the direction of the financial experts, of course, who can be counted on to advise their future and past associates to benefit themselves as much as possible.

Nor is any of this mess offset by the presumed "good news" of the end of the Great Recession, or (as it might be termed), the Gospel of Greed. Even the prosecution of Goldman Sachs has the air of political opportunism and lust for power rather than an action taken in respond to a demand that justice be done:

The Goldman case potentially gives the Obama administration and the Democrats running Congress a much-needed scalp — and a very rich one, at that. From a purely political perspective, Goldman is a great target: A recent Gallup poll shows that confidence in banks is near historic lows, and many Americans feel bottomless resentment toward financiers who make deals that generate lavish commissions, but don't really produce anything of value. (Newman, op. cit.)

If that were not enough, we have the spectacle of revolving door opportunists carefully preparing their defenses. Possibly in response to his reading of public opinion as well as the outrage he knew would ensue once the SEC's action against Goldman Sachs became public, Timothy Geithner earlier announced that he considered the manner in which the presumed recovery had been handled "deeply unfair." ("Geithner: Disparity in recovery 'deeply unfair'," The Washington Post, 04/01/10.) The article was essentially a "pre-excuse" in order to divert the blame when the so-called recovery turns sour — as indeed it must, as it is not backed up either by sustainable production or an increase in productive capacity in which more people can participate as owners.

Yes, business has been "growing" over the past ten months or so, but 1) it's only replacing inventory, and 2) America's industrial base, even if it reached full output, is a shadow of its former self. There are few people alive today who remember that in 1933 — generally considered the worst year of the Great Depression — industrial output was "recovering," showing gains in a number of months. Of course, the economy suffered another serious downturn three years later when the Federal Reserve raised its rates to dampen down the overheated economy because the authorities decided that the recovery was proceeding too fast.

Adding to the problem is the anticipated cost of the new health care mandate. The Obama administration appears to have failed to take into account that ordering employers to pay for workers' health care is a tremendous incentive to get rid of workers and replace them with cheaper foreign workers or more efficient (or at least cheaper and more tractable) technology. The "write down" controversy pales in comparison with the uproar that will ensue when workers find themselves priced out of the labor market.

If that were not enough, business folk as well as the speculators on Wall Street are desperately trying to predict when Federal Reserve Chairman Benjamin Bernanke is going to raise interest rates. (This may also account for the reported rise in business activity, as businesses rush to borrow now at low interest rates in anticipation of a raise in rates, hoping that they will be able to sell what they have produced.) Raising interest rates is the standard tool the Federal Reserve uses to reduce lending for speculative purposes, presumably preventing bubbles from forming. The problem is that putting on the brakes by raising all interest rates means starving the productive private sector for credit in order to inhibit or prevent speculation.

Financial institutions are then forced into an "Asset-Liability Mismatch." They seek out places to put their money that have higher (and increasingly speculative) returns in order to cover the higher cost of that money. This, in part, is what led to the savings and loan crisis of the 1980s. As that experience demonstrated, raising interest rates to inhibit or prevent speculation actually encourages speculation — and, as happened in the mid-1930s and early 1990s, precipitates an economic downturn . . . at a time when we are still in the process of trying to recover from the last one.

We might be tempted to say that the "mini-depression" of the mid-1930s and the recession of 1990-91 weren't all that bad. After all, the economy recovered, didn't it?

Yes and no. The monetary and fiscal policies of the New Deal didn't bring the country out of the downturn of the mid-1930s. World War Two did that. As for the savings and loan debacle, that directly affected only a relatively limited sub-sector of the financial markets. While the final bill was large, in the neighborhood of $160 billion, and is blamed for precipitating the recession of '90-91, most of the economy remained more or less sound, making for a relatively rapid recovery.

That is not the case today. We do not have an Adolph Hitler to start a genocidal war that requires full mobilization of all resources to give us a fighting chance to survive. Neither do we have a basically sound economy to cushion us from the failure of a relatively limited portion of the financial sector. What we do have is an economy, such as it is, from which a large measure of productive capacity has been taken away, and which the State seems intent on undermining further. Perhaps that is what Geithner sees, and why he appears to be so intent on excusing himself and trying to fix the blame elsewhere for the United States pursuing its current suicidal economic policies. He doesn't want to be strung up from a lamppost when the economy hits the pavement.

What is the solution? Obviously, we need to rebuild what Moulton termed "America's Capacity to Produce" (Washington, DC: The Brookings Institution, 1934). That, however, is not enough. We also have to rebuild "America's Capacity to Consume" (Washington, DC: The Brookings Institution, 1934). This will require a full mobilization of resources such as we have not seen since World War Two — but it can be done. Both of the goals can be accomplished at the same time by implementing Kelso and Adler's "Proposal to Free Economic Growth from the Slavery of Savings." Every man, woman, and child must be given the opportunity to produce through direct ownership of both labor and capital, thereby supporting the consumption from which the demand for capital is derived.

Consistent with Say's Law of Markets, producing in a way in which everybody participates through ownership in and of itself, not artificial State action, inflation, or direct redistribution restores consumption to the necessary sustainable level, building and maintaining a sound economy.

#30#

Own the Fed — the Program, Part V: Differences

Despite the obvious similarities between the events and conditions prevalent in the 1930s and those of today, there are some significant differences. These differences are all the more important in that they magnify the errors of applying any solution based on the tenets of the British Currency School. At the same time, reliance on Currency School-based paradigms (most especially Keynesian economics) makes it less likely that a viable solution will be sought among the economic schools and theories based on the natural law principles of the British Banking School (notably Say's Law of Markets and the real bills doctrine), such as binary economics.

There are, of course, the obvious differences of which the more conspiracy-minded are well aware. The one that comes to mind immediately is that the U.S. currency is no longer convertible into gold or silver. Our currency has not been on the gold standard since 1933 domestically, and since 1973 internationally, while silver was removed in 1964. This, however, is misleading, for many people presume that "gold standard" means that legal tender consists exclusively of gold coin and banknotes backed 100% by gold bullion. This was, in fact, never the case. In the United States, "gold standard" (or even a bimetallic standard of gold and silver) from 1792 has meant that the official currency is measured in terms of its pegged value in gold, not that the currency itself is necessarily composed of gold — or silver, or any other metal or commodity.

As we have seen, the vast bulk of the money supply does not consist of gold and silver with subsidiary copper or bronze, or even paper certificates representing specie (gold and silver), but — as Congressman George Tucker attested in his 1839 book, The Theory of Money and Banks Investigated — of privately issued bills of exchange and promissory notes denominated in terms of the official currency. The portion of the money supply made up of such "private sector money" dwarfs the official, legal tender currency by a factor that reflects the degree of State intrusion into the economy. In our day this private sector money constitutes up to 60% of the money supply. In Tucker's day, the Jacksonian era described so well by Alexis de Tocqueville in Democracy in America, the proportion was more than 90%.

Citing official Congressional reports, Tucker observed that the circulating media of the United States was primarily paper representing credit extended by commercial banks of issue. While the net imports of gold from 1834 through 1838 seem enormous at nearly $50 million, this was dwarfed by the amount of bank paper in circulation meeting the needs of commerce. As Tucker stated, writing in 1838,

By far the largest proportion of this class of credits is in promissory notes, especially in the mutual dealings of mercantile men. We may form some idea of their vast amount, when we find those which were discounted at the several banks in the United States, amounting, on the 1st of January [1838] to $485,000,000, and on the 1st of January preceding [1837], to 40,000,000 more. These discounts, moreover, constitute but a part, and, perhaps, not the largest part, of this description of credits. (George Tucker, The Theory of Money and Banks Investigated. Boston: Charles C. Little and James Brown, 1839, 132.)

There are even more obvious differences between the situation in the 1930s and that of today. While there are doubtless many differences that we have failed to consider, and that may be of great significance, at least four seem to be in the first rank of importance. These are (in no particular order),

One, the authorities and policymakers of the 1930s could not look back on presumably halcyon days with the fixed belief that Keynesian economics got us out of the Great Depression.

Two, in the 1930s, America's capacity to produce was still intact.

Three, America's capacity to consume was similarly intact.

Four, the currency was sound and primarily asset-backed.

Let's look at these in the order given.

Keynesian Economics

There are ugly rumors that have been floating about for some time that Keynesian economics did not get the country out of the Great Depression. Instead, there are hints that it was the phenomenally increased demand that accompanied what may have been the single greatest human endeavor in history: the Second World War. There is even a growing suspicion that Keynesian economics was not the direct cause of the slowness of economic recovery or the ultimate ineffectiveness of the New Deal. While the remedies were, in fact, Keynesian, the theories of Lord Keynes may have been used post facto to justify what FDR and others had already decided to do. Keynes himself seems to have been convinced that he was the guiding economic philosopher behind the New Deal, but we cannot find any substantive difference in the New Deal before or after Keynes's meeting with Roosevelt.

In any event, the possibility that World War II ended the Great Depression is consistent with one of the more ludicrous statements made by Lord Keynes, when he was sarcastically suggesting ways to increase demand by producing goods and services for which no market existed, and which were meant solely for "non-use" or destruction. As he claimed in The General Theory, "Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better." (The General Theory of Employment, Interest, and Money, 1936, III.10.vi)

Even if made sarcastically, such a statement reveals more about an orientation based on the tenets of the Currency School than Keynes, perhaps, intended to reveal. The idea that production is, to all intents and purposes, irrelevant is to go directly contrary to common sense. As Jean-Baptiste Say explained (and which we have already cited a number of times), we do not purchase what others produce with "money," but with what we ourselves produce and exchange through the medium of this symbol we call money.

That being the case, the only natural way to increase demand is to increase production — precisely as Moulton pointed out in his analysis of the Great Depression. The two most important factors in economic recovery are employment — by means of which demand is distributed in a modern economy locked into the wage system — and production, by means of which demand is generated in accordance with Say's Law. Today we know that ownership of capital instruments is rapidly replacing human labor — "employment" — as the chief legitimate means of distributing demand, but the point remains the same. Production is at the heart of the economic equation, while distribution must be based on principles of justice. Keynes's solution ignored the importance of production, and of justice in distribution, as the work of Kelso and Adler made clear.

Instead, since 1916 the emphasis has been on creating money not to increase production — that is, to invest in the present value of existing or future marketable goods and services — but to increase demand artificially by redistributing existing purchasing power through inflation and confiscatory taxation. Since the New Deal virtually all mainstream economics has been based on the tenets of the Currency School. Keynesian economics is the most obvious example, but Monetarism and the Austrian School also accept Currency School assumptions.

Consequently, today's mainstream economics rejects the idea that anything other than M1 (coin, currency, and demand deposits) and M2 (M1 plus household holdings of savings deposits, small time deposits, and retail money market mutual funds) can be money. There is a careful and studied dismissal of Say's Law of Markets and the real bills doctrine — the basis of more than half the money supply.

This was not the case in the 1930s. Textbooks on economics gave serious consideration to both Say's Law and real bills as a vital part of the economy. As an example, Elements of Economics: A Textbook for Secondary Schools by Charles Ralph Fay (New York: The Macmillan Company, 1928) — a text for high schools that would challenge many of today's economics post-graduate students if not those with doctorates — topics are covered in depth that are completely absent from modern texts.

For instance, Fay, although he claims that credit instruments are not "money," clearly employs "money" in its common usage to mean "currency," i.e., coin and banknotes. He then goes on at great length describing how checks, promissory notes, bills and other negotiable instruments serve as "money" in a "credit economy" (278-393). Fay spends more than a hundred pages on something that modern texts pass over in silence. The real bills doctrine is described at length, while Say's Law is treated seriously. As the author stated, "We have learned that in the final analysis it is still true that all trade is barter. It is still true that you and I give what we have, services or goods, in exchange for what we want, be they services or goods" (375). He continued, "This fact is embodied in a law which takes its name from a famous French economist. Say's law is as follows: The total volume of trade depends upon the total volume of production." (Ibid.)

The emphasis on production rather than (re)distribution of existing wealth led Fay to make another claim that modern economists and policymakers reject: that the "law of reciprocity" (an application of the real bills doctrine and Say's Law) is valid. As the author stated,

We have learned that in the intercourse of nation with nation only a relatively small amount of specie changes hands. In 1924 specie shipments into this country and from here abroad amounted to less than five per cent of the other items comprising our exports and imports.

How is the remaining ninety-five per cent paid for? They cancel each other.

From this we can formulate the law of reciprocity as follows:

The exports of a nation (visible and invisible) [i.e., both goods and services] pay for its imports, and its imports (visible and invisible) are paid for by its exports; in the long run the two must be equal. (Ibid., 375-376.)

These astonishing statements are made as if they were simple common sense — as, indeed, they are, unless we are locked into the tenets of the mercantilist Currency School. Further, the observations apply not just to nations, but to individuals. The "law of reflux" — that excess banknotes will automatically flow back to the issuing bank for redemption until equilibrium is reached — on which classical economists of the banking school put so much emphasis, is simply a version of the law of reciprocity on the micro scale. (cf. John Fullarton, On the Regulation of Currencies of the Bank of England. London: John Murray, 1845.)

In any event, much of what people in the 1930s had been taught and took for granted — and which provides part of the theoretical basis for binary economics — has disappeared from today's radar. Moulton faced the task of convincing policymakers dazzled by the prospect offered by Keynesian economics of getting something for nothing (i.e., of people being able to realize effective demand without the necessity of producing marketable goods and services) that the common sense approach was still the best. (cf. Moulton, Income and Economic Progress. Washington, DC: The Brookings Institution, 1935.) Today we face the task of persuading a generation of policymakers and economists to give a fair hearing to the common sense they have already dismissed as nonsense.

America's Productive Capacity

In the 1930s, the productive capacity of the United States was still largely intact. This was attested to in Moulton's study released in 1934, America's Capacity to Produce (Washington, DC: The Brookings Institution). As a result of the unwillingness or inability of the banking system to extend credit, the productive sector ground to a halt, just as Charles Morrison predicted in 1854:

Confidence and credit are only moral elements in society; they may be said to be, to a great extent, mere matters of opinion; yet their importance in the production and distribution of wealth is so great, that the whole machinery of material production is kept at work, disordered, or paralyzed, according as these principles act in a healthy manner, irregularly, or not at all. They are to our industrial community what the nervous system is to the body, a slight and sensitive substance in itself, but the indispensable cause of all the life and motion of the system. A great nation may possess in abundance all the means of producing wealth, — population, intelligence, capital, natural and artificial instruments of production; and yet, if credit and confidence should be from any cause destroyed, all these resources seem to have lost their virtue, and general distress prevails. Let confidence and credit be restored, and the whole system is immediately set in motion again, and in a very short time general prosperity returns. (Charles Morrison, An Essay on the Relations Between Labour and Capital. London: Longman, Brown, Green, and Longmans, 1854, 200.)

If that were not enough, the drastic decline in the market value of equity shares on Wall Street meant that the collateral that could be offered even by otherwise sound businesses was worth significantly less than before the Crash of 1929. All that was really necessary to get business started again was reasonably priced credit and a substitute for traditional collateral.

Today, however, under the illusion that the United States has evolved from a "production economy" to a "service economy" to an "information economy" (of which the most important datum seems to be whether or not someone has a job or can secure sufficient government transfer payments), America's productive capacity, especially in basic industries, has either been shifted overseas, or is concentrated in the hands of an increasingly tiny financial elite.

America's Capacity to Consume

In the 1930s, the capacity to consume in the United States was still intact. By that we mean that consumer debt was minimal. All that was needed was a broader and more effective distribution of income, and — more importantly — an end to the diversion of consumption income into investment channels. Of course, by focusing on the need to increase effective demand to the exclusion of all else, especially production, Keynes came up with the wrong solution — redistribute purchasing power through inflation or taxation.

Today, the increasing burden of consumer debt has eroded the capacity to consume to such an extent that, not counting home mortgages, per capita consumer revolving debt is a little under $9,000. This works out to a little short of $36,000 per "average" household of two adults and two children.

Consequently, the economy is kept running only by increasing consumer debt. This is true to such an extent that when a decrease in consumer borrowing was announced in April of 2010, the authorities went into a panic. (Martin Crutsinger, "Consumer Borrowing Falls $11.5 Billion in February," Associated Press, 04/07/10.) Obviously, the powers-that-be assume that unless consumers can live beyond their means as a matter of course, the economy will never experience a sustainable recovery. Unfortunately for such hopes, the evidence suggests that consumers are tapped out. Consider the facts. (These calculations are necessarily very rough, but we are after the trend, not scientific precision.)

According to the U.S. Census Bureau, in 2002 the median net wealth of American households was $58,905 (http://www.census.gov/hhes/www/wealth/2002/wlth02-1.html). "Net," of course, means that "revolving debt" (mostly credit card balances) of $858.1 billion and non-revolving debt (mostly home mortgages and auto loans) of $2,447.9 billion (http://www.federalreserve.gov/releases/g19/current/g19.htm) — a total personal debt burden of $3,306.0 billion, or $10,695.57 per capita — is factored into the calculation. We're using figures from the U.S. Census Bureau on April 19, 2010, which gave the population of the U.S. as 309,099,518 (http://www.census.gov/main/www/popclock.html).

Not factored into the equation is the national debt, backed by the ability of the federal government to collect taxes from citizens. According to the "National Debt Clock" (http://www.usdebtclock.org/), the national debt on April 19, 2010 was $12.855 trillion, or $41,589 per capita. Total per capita debt, personal and federal government, is thus $52,284.57. Net wealth is net personal wealth less government debt, or $17,316.

Net per capita wealth of a little over $17,000 doesn't sound all that bad, especially when we consider that it doesn't include vested pension benefits or government entitlements and transfer payments. Of course, vested pension benefits are no longer all that secure with the bankruptcy of a number of defined benefit plans over the past couple of years. Nor are government entitlements such as Social Security and Medicare funded with hard assets, but have a projected shortfall of more than $70 trillion.

Then, of course, we have to realize that the per capita wealth figure consists principally of equity in a home, since the 1930s considered a way of building wealth for retirement, not of funding consumption. We also need to consider the fact that our median net wealth figure dates from 2002 — before the home mortgage crisis wiped out billions in home equity.

Our conclusion is that, far from being intact, America's capacity to consume in the first two decades of the 21st century is in ruins, and is virtually non-existent. Consumption without production cannot continue forever, any more than we can increase or carry on without end redistribution of existing wealth directly or through money creation for non-productive purposes such as consumption and government spending.

A Sound Currency

Before FDR's New Deal, the U.S. currency was sound. Most of the currency was asset-backed, although there was a substantial amount of government debt — approximately $19 billion, according to Moulton. (The Recovery Problem in the United States, op. cit.) By far the greater part of GDP, however, consisted of transactions carried out by means of private sector money.

Nowadays the private sector still accounts for most of GDP, but the government's share is much greater and is increasing rapidly. Before the New Deal, M1 and M2 were largely asset-backed by gold and qualified industrial, commercial, and agricultural paper. At present, M1 and M2 are backed by more than $2 trillion in government debt and "toxic" assets, and a token amount of gold. The debt- and toxic asset-backed portion of M1 plus M2 is more than double the amount outstanding before August of 2007.

Consequently, the country owes its survival to business and the soundness of the non-M1 and M2 money supply: privately issued commercial paper, bills of exchange, promissory notes, and so on. Oddly, however, the State, by trying to take over the private sector, and by manipulating money and credit and destroying the checks and balances built into the financial system, has seriously undermined the soundness of this private sector money supply. At the same time, as we have seen, the Federal Reserve authorities and government policymakers act as if this more than $10 trillion in private sector money doesn't event exist, even though it accounts for approximately 60% of GDP.

These are the obvious differences between the situation in the 1930s and that of today. Of these, perhaps the most immediately damaging, and the one that leads to the others, is the belief that the principles of Keynesian economics offer a viable solution. Consequently, the State is obsessed with the idea that it can control the economy by manipulating discount rates and reserve requirements as well as by creating money for bailouts and redistribution.

The assumption that the State controls the economy is rooted in the tenets of the Currency School. Primary among these is that M1 and M2 are the only M (money supply). This delusion also afflicts the monetarists and the Austrians to a lesser degree. The only effective difference is that the Monetarists and Austrians demand less or no government manipulation of M1 and M2 — all the while maintaining the basic principles of the Currency School that require increasing levels of government intervention.

All schools of economics ignore the "elephant in the icebox," or if you prefer, the 800-pound gorilla in the room. That is the enormous amount of private sector money created between businesses and individuals that constitute most of GDP. The economists and policymakers, because they define money incorrectly and assume the necessity of existing accumulations of savings to finance capital formation, are not dealing with reality. They are, in fact, rejecting reality, and so will only do the right thing by chance. There is an adamant refusal to come to terms with "the economics of reality." This accounts in large measure for the massive confusion we see regarding economic and financial policy and actual practice.

In effect what we have is a Procrustean Economy — economists and policymakers keep trying to hammer the economy into a pre-determined shape or obtain a desired result. Unfortunately, what we end up with is a dead economy in the shape of a corpse. The economy is much bigger than the "bed," so the Federal Reserve at the behest of the State works to cut off anything that does not fit their limited understanding, whatever is "beyond the bed" or outside the box, so of course the economy is seriously endangered and can even die.

This leads us to a further, unwelcome conclusion — that reliance on Keynesian economics to provide the theoretical framework for today's recovery efforts is predicated on the truth of something that never actually happened. That is, today's academics and policymakers assert that President Hoover failed miserably to promote recovery, and it was not until FDR implemented a recovery program based on Keynesian economics that the country came out of the depression.

The facts suggest otherwise. Hoover's proposals were, in the main, substantively no different from what FDR implemented. When the New Deal began faltering, Keynes was brought in to provide theoretical justification for what was already being done. Keynes even complained in his notorious letter to the New York Times that the reason the country suffered a serious downturn in the mid-1930s was because Roosevelt never really implemented Keynes's solutions.

Thus, claiming that "Keynesian economics" was responsible for getting us out of the depression is wrong on two counts. 1) Keynes didn't bring the U.S. out of the depression. Hitler did. 2) The New Deal wasn't based on Keynesian economics. Keynesian economics managed to receive validation from being used to justify the New Deal, not from being the basis of the New Deal. If anything, Keynesian economics is based on the presumed effectiveness of the New Deal, not the other way around.

Today's politicians who try to emulate FDR's presumed success by implementing Keynesian programs are, at the very least, putting the cart firmly before the horse and committing an egregious post hoc, ergo propter hoc (after this, therefore because of this) logical fallacy. All that Keynesian economics or other economic theories based on the tenets of the Currency School manage to do is increase the concentration of economic and political power in an increasingly small elite.

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Own the Fed — the Program, Part IV: Similarities

Just prior to the Crisis of 1937, when the Federal Reserve shattered the fragile recovery by raising interest rates, Dr. Harold Moulton published The Recovery Problem in the United States (Washington, DC: The Brookings Institution, 1936). The purpose of the book (at a little over 700 pages, perhaps Moulton's longest and most intensely researched work) was to provide "a general analysis focused strictly upon the problems of recovery in the United States at the present juncture." (Ibid., vii.) Early in the book, Moulton observed that there appeared to be a number of "interesting features" that made recovery from the Great Depression apparently unique in the annals of economic and financial history.

These six "interesting features" are even more "interesting" today. This is especially so in that there appears to be a definite congruence between the condition of the United States in 1931-1936, and the prevailing economic, financial, and political environment today, albeit with some significant differences. In 1936 these "features" seemed to presage the sudden downturn in the economy that occurred a year later. The much greater degree to which a number of these factors influence conditions today can reasonably be taken as heralding something similar in our day, only with a much greater impact.

In the order in which Moulton presented them (though not necessarily their order of importance) the features are,

1. The extraordinary slowness of the recovery,

2. Recovery of international trade lagged behind the expansion of world production,

3. Continuance of unstable international monetary relations,

4. Failure of commodity prices to rise appreciably,

5. A lag in the recovery of durable goods industries, and

6. An extraordinary increase in public indebtedness.

Perhaps most "interesting" of all, however, is something that Moulton did not specifically mention. That is, there was and remains a stubborn refusal on the part of the Federal Reserve authorities and the federal government — to say nothing of the financial community — to recognize and act in accordance with financial and economic reality.

In the previous posting in this series we discovered that even a rough calculation using data from 2008 suggests that the Federal Reserve — and thus government monetary policy — does not take into account more than 60% of total economic activity. Worse, the Federal Reserve (and thus the federal government) does not appear even to recognize the existence of an estimated $10 trillion in what we have for convenience termed "private sector money." That being so, the fixed belief that government and Federal Reserve fiscal and monetary policy can somehow either control the economy or provide the basis for developing a workable solution to economic crises sounds more than a little hollow. Approaching a problem by taking less than half of reality into account would seem to be a virtual guarantee of failure.

Nevertheless, this was the case in 1936 and continues to be the case today. This is so whether we are discussing the causes and cure of the Great Depression, or today's Great Recession. Only by taking into account an effort to describe reality in its fullness — as in the Just Third Way based on the binary economics of Louis Kelso and Mortimer Adler — can we hope to develop a workable and just solution to our economic and, increasingly, political problems. For this reason we need to take a closer look at the similarities between today's Great Recession and the Great Depression of the 1930s. It was during the 1930s that the monetary policy of the Federal Reserve (and thus of the federal government) abandoned the last vestiges of a rational system based on the principles of the British Banking School, especially Say's Law of Markets and the real bills doctrine, and shifted over completely to a system based on the misleading tenets of the British Currency School.

Seeking for the ultimate cause from a Just Third Way perspective, it appears that the Great Depression may have been the natural result of two coincident developments that, taken alone were bad enough, but together fed on each other like mutual parasites, bleeding the economy dry between them. They served only to increase the power of the political and financial elite at the expense of ordinary people, even though — ironically — frequently carried out with the enthusiastic approbation of the citizens. These two developments were 1) the prevalence of the erroneous understanding of money and credit on which the tenets of the Currency School are based, and 2) the fixed idea that necessarily developed out of any economic approach based on the Currency School that a wage system job is the only viable means whereby the great mass of people can gain an adequate and secure income.

The first of these we have already covered. Again, the Federal Reserve — the central bank of the United States — was designed to run in accordance with the principles of the Banking School, but was and is being run as if the tenets of the Currency School are valid. The financial chaos that has come about was the inevitable result of attempting to use a tool designed to operate on the basis of one set of principles, as if it were intended for a different system entirely.

The second of these also relates to reliance on the principles of the Currency School, but less directly than the virtual hijacking of the Federal Reserve. That is, the virtual disappearance of ownership income as a primary source of consumption power for the greater number of people. As Judge Peter S. Grosscup had noted in the generation prior to the Great Depression, ownership of farms and small shops was disappearing rapidly, being replaced by more and more people totally dependent on a wage system job for the totality of their subsistence.

The disappearance of ownership among the greater part of the population was and remains a cause for concern not only economically and politically, but morally as well. Forcing people to subsist exclusively on wages is a violation not only of the natural right of liberty — free association — (reliance on wages alone being the foundation stone of the Servile State), but also undermines the natural right of everyone to be an owner. This is due in large measure to the tendency of many people to make great leaps in what they believe to be logic. Seeing no other way under the tenets of the Currency School for most people to gain a living income than through the mechanism of wages, they conclude that everyone must be paid a wage. That being the case, the level of wages must be sufficient to provide a decent life for the worker and his or her dependents. Only wages are presumed to deliver justice to the worker.

Such authorities and commentators therefore conclude — based on what they believe to be a fundamental and Divine law of nature, but what is in reality a delusion based on false economic premises — that the right to a wage (and thus a wage in an amount sufficient to provide a decent life consistent with the demands of human dignity for the worker and his or her dependents) is a primary right. On the contrary, as John Ryan explained in his 1906 work, A Living Wage, the right to a wage of any kind is a secondary or derived right. Ironically, Ryan's book is often cited to support wages as the only source of income, and is frequently treated as virtual holy writ by moral authorities anxious to maintain ordinary people in a condition of utter dependency — and therefore subject to the complete control of the State. The suspicion grows, however, that many of the authorities and commentators citing Ryan's work have not actually read it, especially in light of his admonition that,

[The Living Wage] is not an original and universal right; for the receiving of wages supposes that form of industrial organization known as the wage system, which has not always existed and is not essential to human welfare. Even to-day there are millions of men who get their living otherwise than by wages, and who, therefore, have no juridical title to wages of any kind or amount. The right to a Living Wage is evidently a derived right which is measured and determined by existing social and industrial institutions. (John A. Ryan, S.T.D., A Living Wage: Its Ethical and Economic Aspects. New York: Grosset & Dunlap, Publishers, 1906, 68.)

It comes as an extremely unwelcome surprise to a number of modern commentators that Ryan, presumed to be the high priest of the wage system, could affirm the absolute and sacred nature of private property. Nevertheless, that is the case:

Man's natural rights are absolute, not in the sense that they are subject to no limitations — which would be absurd — but in the sense that their validity is not dependent on the will of anyone except the person in whom they inhere. They are absolute in existence but not in extent. Within reasonable limits their sacredness and binding force can never cease. Outside of these limits, they may in certain contingencies disappear. If they were not absolute to this extent, if there were no circumstances in which they were secure against all attacks, they would not deserve the name of rights. . . . The most important of these are the rights to life, to liberty, to property, to a livelihood, to marriage, to religious worship, to intellectual and moral education. (Ibid., 45-47.)

Both wages and the wage system itself are determined not by nature or the inscrutable workings of the laws of economics, but by the structuring of the institutions of the common good — which, as Ferree explained, are under our direct control. The wage system is not a law of nature or of nature's God, but the result of human beliefs and decisions that can be modified and corrected in order to arrive at a more just arrangement of society. This is especially true with financial institutions such as money, credit, and banking that give form to the economy. Under the tenets of the Currency School, the abolition of private property for the great mass of people and their eternal dependency on the wage system seems inevitable, even natural. Under the principles of the Banking School, however, the concentration of ownership and the enforcement of the wage system is clearly the result of raising and maintaining artificial barriers to full participation in the economic common good.

Obviously, the question becomes how dependency on the wage system — effective slavery — was forced on a presumably free people. Briefly (for we intend to relate the story at some length in a future series of postings), with the federal government operating under the assumptions of the Currency School and with the institution of the system of national banks following the American Civil War, monetary and fiscal policies were implemented that assumed as a given that capital formation could only be financed out of existing accumulations of savings. This necessarily led to the imposition of the wage system on the great mass of people. This is because accumulating sufficient savings to finance new capital formation requires that the earnings of capital flow to people who will not use the earnings for consumption, but reinvest them. Most people, therefore, must gain a living income only by selling their labor, for most people need to spend their income on consumption, not reinvestment.

That the system does not really work this way is irrelevant. (See The Formation of Capital, 1935.) People, especially policymakers and academics, believe that it operates in this way. That belief is sufficient to ensure that the institutions of the economic common good under their control will be structured or rebuilt to conform to these assumptions, right or wrong. Consequently, as the industrialization of the United States advanced and its commercial power grew at a tremendous rate in the latter half of the 19th century, the loss of private property in the means of production for the great mass of people proceeded apace. As Grosscup noted, people in the early 20th century were rapidly losing ownership of the means of production, especially small shops and farms, and were being forced to subsist exclusively on wages.

Paradoxically, the number of farms increased during the Great Depression. As Moulton pointed out, however, this was a temporary phenomenon. The increase in farms was in response to much worse conditions in urban areas as wage system jobs disappeared. (The Recovery Problem in the United States, op. cit., 146-147). This was driven by the fact that even on a marginal farm producing at a bare subsistence level an individual had a better chance of survival than in the city where nothing could be produced.

Moulton noted an even greater paradox with respect to wage/salary workers employed in industry, an inconsistency that contradicts more than a century of socialist and union propaganda. That is, the number of workers engaged in direct production in manufacturing was in decline long before the Crash of 1929 — yet during the same period production of manufactured goods increased at an astounding rate. As Moulton related,

Since the World War there has been a marked tendency toward contraction in the volume of employment furnished by manufacturing. Despite the increase in population, the number of wage earners in 1929 was lower than in 1919. The decrease cannot be explained by cyclical differences in economic activity between the two years for in 1929 manufacturing production was the highest ever attained and was, in fact, almost 50 per cent higher than in 1919. (Ibid., 153-154.)

There is probably no better proof of the binary concept of relative productiveness of labor and capital as opposed to productivity of labor alone. The latter half of the 20th century saw a great decline in union membership, only being reversed to a degree by a tremendous drive to include occupations not traditionally associated with participation in the organized labor movement, such as teachers and government workers.

The decline, of course, was not related to disinterest or replacement of the principal role of unions by the State. Union support was and remains an important political force in the United States. It makes no sense for the State to replace unions and thereby undermine its own political support. The fact is that the decline in union membership and the replacement of lost membership by people in new occupations was clearly due to the decline in the number of people directly involved in manufacturing. This explains the necessity the "labor" movement sees in increasing its membership among bureaucrats and administrative personnel, to say nothing of professionals and semi-professionals instead of its traditional base among laborers who produce directly. Direct labor is simply not as productive, relatively speaking, as formerly, and the bulk of income is distributed through indirect labor wage system jobs.

What all this means is that the productive sector — that is, the sector that directly produces marketable goods and services — has increasingly been "subsidizing" massive employment that does not engage directly in production of marketable goods and services. This was true in the 1930s and is true today. It was also true in the late 1950s and early 1960s when Kelso and Adler did their work. The fact is that "job creation" is essential under the assumptions of the Currency School, and has become increasingly critical as technology advances and replaces direct human labor as a primary input to the production process. Indirect administrative labor — managerial and technical labor — has rapidly been replacing direct human labor as a factor of production. As Kelso and Adler explain,

In the industrial production of wealth, i.e., in machine production, there are, as we have seen, three main types of human workers: (1) mechanical workers; (2) technical workers; and (3) managerial workers. Of these three, the first perform purely mechanical tasks. The last two perform tasks most of which are not mechanical and cannot be mechanized.

Just as the individual productive contribution of mechanical workers accounts for less of the total wealth produced in a highly industrialized economy than it does in a nonindustrialized economy or in one which represents a primitive stage of industrialization, so the individual productive contribution of technical and managerial workers accounts for more of the total wealth produced in a highly industrialized society than it does under primitive industrial conditions. Proportionately more technical and managerial man-hours are required, and more highly-developed managerial and technical skills are called for, as industrialization becomes technologically more advanced. The available evidence further indicates that the economic productivity of managerial and technical workers — at least under conditions of relatively full employment — is higher today than at any previous time in our economic history.

The primary reason for the latter fact is undoubtedly that technical and managerial skills are responsible for the invention, improvement, and efficient operation of the machinery which, relative to other factors, has become more and more productive with progressive industrialization.

It follows, therefore, that with progressive industrialization and with the increasing productiveness of the economy as a whole, the relative productiveness of technical and managerial work increases, as measured by the contribution each makes to the total wealth produced. (Louis O. Kelso and Mortimer J. Adler, The Capitalist Manifesto. New York: Random House, 1958, 39-40.)

As Kelso and Adler conclude, "It is clear that the actual physical contribution of labor to the production of wealth is now extremely small as compared with that of capital instruments. It is, if anything, an underestimation rather than an exaggeration to say that the aggregate physical contribution to the production of wealth by workers in the United States today accounts for less than 10 percent of the wealth produced, and that the contribution by the owners of capital instruments, through their capital instruments, accounts in physical terms for more than 90 percent of the wealth produced." (Ibid., 41.)

Direct labor jobs are usually classified as variable costs and more subject to cutting. Indirect labor jobs, on the other hand, are usually considered fixed costs, and not subject to cutting, at least in the short run. A single direct labor job typically supports several indirect labor jobs. When faced with an economic downturn, however, companies generally first cut direct labor jobs. This makes it more difficult to subsidize the indirect labor jobs, which are harder to reduce, even though the indirect labor jobs depend on the direct labor jobs to justify even a marginal existence. This paradox increases the magnitude of the economic "hit" suffered when companies cut jobs and thus reduce production. The labor that actually produces marketable goods and services is reduced, while the labor that is not directly engaged in producing marketable goods and services is retained. (This assumes a constant level of technology. As technology advances, or direct labor jobs can be shifted to lower cost wage areas, a company can subsidize more indirect labor jobs at the expense of domestic direct labor jobs as well as GDP.)

Obviously, the main problem when addressing the recovery problem in the 1930s is the same as the main problem today: employment and production. Where the authorities in the 1930s were concerned with employment and hardly at all with production, however, the authorities today are more concerned with supporting the price level on the secondary market for debt and equity — "Wall Street" — than with the real (as opposed to "official") unemployment rate or production.

All of this leads inevitably to the conclusion that the present so-called recovery is nothing more than the calm before a very violent storm. This is consistent with the conclusion by Harold G. Moulton. As he wrote in 1936,

It is apparent from this analysis of the extent and character of the recovery movement that, great and widespread as the improvement has been, the economic condition of the world is still far from stable. The problem of unemployment with its social and political implications remains everywhere grave. The position of agricultural populations has been somewhat improved as a result of more favorable price ratios, but farm incomes still remain well below the levels of 1929. The problem of maintaining fiscal and monetary stability has been seriously complicated by the universal expansion of public indebtedness; and heavier tax burdens are in store for the future. World trade and financial relations are still profoundly abnormal, and, although the surge of economic nationalism appears definitely on the wane, extraordinary barriers to international commerce remain. We are still endeavoring in substantial measure to operate an international economic system on principles of national independence.

Moreover, a new development — arising largely from disturbances incident to the depression itself — has come to menace the resumption of international trade, the stability of public finance, and the whole process of economic recovery. Vast military programs threaten the peace of the world. While currently contributing to the expansion of industrial activity and employment, military outlays make no permanent contribution to recovery. They do, however, imperil the foundations of the economic system. (The Recovery Problem in the United States, op. cit., 90-91.)

With minor changes in specific details, Moulton's analysis very closely resembles the global situation today. The bottom line, of course, is that no more than the State controls the whole of society does the central bank control the whole of the economy. Each fills a specific and necessarily limited role in its proper sphere. When either — or both together — strays outside its legitimate sphere, the situation progresses by degrees from incompetence, to overweening arrogance, to functional overload and, finally, to chaos as the social and economic order implode.

Still, the authorities today are correct in at least one respect. The situation today, while it strongly resembles the predicament of the United States during the Great Depression, is different — and not just because they insist on manipulating statistics and terminology to confuse matters. This, of course, begs the question as to why the authorities insist on applying the same failed remedies as led to the series of economic downturns that constituted the Great Depression. It only remains to examine in what specific ways the situation today differs from that of eighty years ago, and how we may use this knowledge to develop a viable solution not only to the present crisis, but to the task of restructuring and rebuilding the social order in a manner that respects the dignity of each human being.

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