Thomas Hobson (1544-1631) was a livery stable owner in Cambridge, England, who gave customers the "choice" of any horse in the stable as long as it was the one in the stall nearest the door. A way of preventing the best horses from being overused, the actual choice was "take it or leave it" — a genuine choice, but not very attractive to the customers if they happened to draw plugs.
There are other types of disagreeable choices, most of them dating from the modern age in which choice itself has been raised to a virtue, regardless of the objective quality or morality of the options. At the top of the list is Joseph Heller's "Catch-22," described in the Wikipedia as being "a logical paradox arising from a situation in which an individual needs something that can only be acquired by not being in that very situation."
Then there's the "double bind" in which there are two or more conflicting situations, all presumably equally valid but which contradict each other, so that a positive response or reaction to any one negates all the others, with disastrous consequences — as it is often put, "You're damned if you do, and damned if you don't."
We now have "Obama's Choice." The Pro-Choice president has delivered a mandate that under the mantra of "choice" forces people to take the only option given, willy-nilly. As we saw in yesterday's posting, President Obama believes his position to be solid — politically, economically, and legally.
Politically, the American bishops have a history of giving ground, as demonstrated by the ineffectiveness of the Pro-Life movement and the fact that many Catholics voted for Obama in the last election. Economically, individual Catholics and the Catholic Church as a whole are dependent on the government for funding the social programs they have demanded for over a century. Legally, Congress passed a law, and the law is always right . . . except when the Supreme Court says it isn't, and the Supreme Court isn't about to do anything to undermine the power it has managed to gather to itself.
Fortunately for the American people and the Constitution, "Obama's Choice" isn't really what the president thinks it is. Obama is obviously relying on there being no alternatives to what he proposes, and the proven ineffectiveness of the American bishops — and religious leaders of other faiths — when faced with the power of the State.
The fact is, however, that there are alternatives to the current system that glorifies State power over everything else. "Obama's Choice" is actually what is called in logic a "false dilemma": only two choices are presented (obey the law or suffer the consequences) when, in fact, there are others.
Obama assumes as a given that he has Catholics and the Catholic Church in his back pocket. He clearly believes that neither individual Catholics nor the institutional Church will vote him out of office and risk losing the benefits that presumably only the State can provide and which the various Republican candidates want to cut. Obama, so he believes, has the Catholic Church over a barrel.
Therein lies Obama's first miscalculation. While the Catholic Church is the most visible and vocal target of the contraception mandate, the contraception mandate is not a "Catholic issue." There are people of other faiths, even none at all, who recognize the danger of the State dictating religious beliefs and practices, and thereby attempting to establish religion in contravention of the First Amendment.
Obama, however, has made an even more serious miscalculation. That is to accept without question the assumption that the proper role of the State is to be the sole guarantor of all individual material goods. The "common good" or general welfare over which the State exercises authority is, in this understanding, the aggregation of all individual material goods. That being the case, the State has not only the right, but the duty to guarantee a minimally acceptable standard of living for everyone, and to decide what, exactly, constitutes "acceptable."
If it is, in fact, the case that the State is the sole guarantor of all individual material goods, then the determination of those goods is a purely civil (that is, non-religious or domestic) matter. The Catholic Church or any other religious body can give its opinion as to the objective goodness (or badness) of anything the State has deemed a good, but that opinion is just that — an opinion, and has no validity unless the State as an exercise of prudence or expedience chooses to accept that opinion, and in its generosity allow that opinion to be applied to members of that religious body. If, however, allowing the exception would create an unacceptable precedent (e.g., prevent people from being guaranteed what the State has determined to be a desired result), then the religious body or bodies must give way.
Suppose, however, that the common good — the general welfare — is not, in fact, the aggregate of individual material goods enjoyed by the citizens of a State? Suppose (for the sake of argument) that this "common good" is something less material and a bit more spiritual. If that is the case, then the State would not only be overstepping its bounds to deny religious bodies and institutions exemptions based on conscience, it would be a tyranny for trying to guarantee results by usurping rights that belong to individual citizens and their free associations — rights that are vested in those same citizens to empower them to meet their own needs by their own efforts, thereby growing and developing their potential as human beings.
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THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
Tuesday, March 13, 2012
Monday, March 12, 2012
Welfare Blackmail, Part I: Obama's Case
The American Catholic bishops are in a bind, as are all Catholic Americans. Having as a body effectively endorsed the Welfare State and accepted that the State is the guarantor of all individual goods (see Economic Justice for All, the 1986 American Bishops' "Pastoral Letter" on the U.S. economy), they have acquiesced in legalized abortion and are now faced with being forced to participate materially in providing artificial contraception and sterilization. That is, having accepted the benefits the State presumably confers, they now balk at the price.
The liberal media have been quick to exploit the situation, presenting the Catholic Church's position — as they and, unfortunately, many Catholics understand it — as hypocritical. The Church has, after all, despite decades of protests and demonstrations, permitted abortion to continue, even conceding the use of tax dollars to support the abortion industry. Requiring that religious institutions pay for contraception and sterilization doesn't seem as bad as abortion, so why all the fuss? Besides, most Catholics use contraception and some have sterilizations, so why not just recognize reality and come into the 21st century?
The general public — and the media that tell the public what to think — clearly doesn't understand the difference between allowing even a monstrously unjust law to continue for a time if you are not personally forced to do wrong, and a law that forces you to do wrong. In moral philosophy (which means simple common sense), we can — in some cases must — allow an injustice to continue if trying to end the injustice under current conditions would reasonably be expected to materially disrupt society.
This does not mean that we are permitted to let things stay as they are. There are two caveats to allowing unjust laws to continue that many people, even Catholics, overlook. The first is that we are not forced in any way to participate in the evil. Legalized abortion does not require that anyone have an abortion; to that extent the mealy-mouthed equivocation of the Pro-Choice position is correct: if you're against abortion, don't have one. (The issue of tax monies used to support abortion, directly or indirectly, confuses many people because they don't understand the principles of taxation, and our unnecessarily complex tax system obscures how tax monies are spent.)
The second caveat is that we must not allow matters to stay as they are. In social justice we are obligated to organize with others and work to reform our institutions, preparing the way to remove the unjust law in a way that reasonably ensures that people accept not having what they formerly regarded as a right.
Allowing an unjust law that does not force you to do wrong to continue — for a time — however, is substantially different from going along with a law that forces you personally to do wrong. When chattel slavery was legal, no one was legally required to own a slave, nor did the government provide subsidies, tax credits, or other benefits to slave owners.
When the government did support slavery, as with the passage of the Fugitive Slave Act of 1850, the law was widely disobeyed, in some cases openly flouted. The Fugitive Slave Act was, until the Volstead Act (Prohibition), the most widely disobeyed law in U.S. history.
The political and economic forces behind the Fugitive Slave Act and the subsequent Dred Scott decision that overturned the Missouri Compromise eventually led to the Civil War. Prohibition led to the almost complete breakdown of civil authority in some areas, such as Chicago, and to the entrenchment of organized crime.
It is thus a supreme irony that America's first black president (who was also a senator from Illinois), who should be more sensitive than anyone else to the consequences of laws that force people to act contrary to conscience, has announced that he will not negotiate or give ground in any way on the issue of forcing religious institutions to violate religious principles. President Obama seems determined to overturn the "compromise" of Roe v. Wade and impose a modern day Dred Scott decision.
From his perspective, Obama's actions are eminently reasonable, and he has what appears to be solid support for his move, legally, politically and economically. Justice Roger Brooke Taney, of course, in 1857 believed he had equally firm support for the Dred Scott decision, which according to William Crosskey was a blatant attack on the Constitution of the United States. The Fugitive Slave Act, despite its futility, demonstrated the support of the federal government for slavery, as would the use of government troops to put down John Brown's raid on Harper's Ferry in 1859. David Christy's Cotton is King in 1855 argued that the economic survival of the United States and the British Empire depended absolutely on chattel slavery.
Obama has every reason to believe that the American bishops — and, of course, the laity of the Catholic Church whose votes ensured his election in 2008 — will (after a suitable display of bravado and bluster) cave in. The bishops' protests over Obama being granted an honorary degree from the University of Notre Dame, bestowed by University President Father John Jenkins in open defiance of the bishops' authority, were clearly nothing for anyone to worry about, a tempest in a teapot. The bishops obviously lacked the power to keep even a single Catholic institution, and that one a virtual icon of American Catholicism, in line. The controversy (such as it was) blew over. Father Jenkins was not called to book for his act, and was even regarded as a Pro-Choice hero by many for what was characterized as a courageous stand in going with public opinion.
To clinch the matter from Obama's perspective, by allowing the State to become (as one enthusiast put it) "the sole intercessor available to the poor" (i.e., the source of every material good), the bishops have necessarily abrogated their moral authority. The bishops, now dependent on the State for funding the social programs they believe to be essential, are going to be forced to obey, despite anything they say. They have always given ground before, and the contraception mandate is no different from previous confrontations in which the bishops demonstrated their complete lack of power.
#30#
The liberal media have been quick to exploit the situation, presenting the Catholic Church's position — as they and, unfortunately, many Catholics understand it — as hypocritical. The Church has, after all, despite decades of protests and demonstrations, permitted abortion to continue, even conceding the use of tax dollars to support the abortion industry. Requiring that religious institutions pay for contraception and sterilization doesn't seem as bad as abortion, so why all the fuss? Besides, most Catholics use contraception and some have sterilizations, so why not just recognize reality and come into the 21st century?
The general public — and the media that tell the public what to think — clearly doesn't understand the difference between allowing even a monstrously unjust law to continue for a time if you are not personally forced to do wrong, and a law that forces you to do wrong. In moral philosophy (which means simple common sense), we can — in some cases must — allow an injustice to continue if trying to end the injustice under current conditions would reasonably be expected to materially disrupt society.
This does not mean that we are permitted to let things stay as they are. There are two caveats to allowing unjust laws to continue that many people, even Catholics, overlook. The first is that we are not forced in any way to participate in the evil. Legalized abortion does not require that anyone have an abortion; to that extent the mealy-mouthed equivocation of the Pro-Choice position is correct: if you're against abortion, don't have one. (The issue of tax monies used to support abortion, directly or indirectly, confuses many people because they don't understand the principles of taxation, and our unnecessarily complex tax system obscures how tax monies are spent.)
The second caveat is that we must not allow matters to stay as they are. In social justice we are obligated to organize with others and work to reform our institutions, preparing the way to remove the unjust law in a way that reasonably ensures that people accept not having what they formerly regarded as a right.
Allowing an unjust law that does not force you to do wrong to continue — for a time — however, is substantially different from going along with a law that forces you personally to do wrong. When chattel slavery was legal, no one was legally required to own a slave, nor did the government provide subsidies, tax credits, or other benefits to slave owners.
When the government did support slavery, as with the passage of the Fugitive Slave Act of 1850, the law was widely disobeyed, in some cases openly flouted. The Fugitive Slave Act was, until the Volstead Act (Prohibition), the most widely disobeyed law in U.S. history.
The political and economic forces behind the Fugitive Slave Act and the subsequent Dred Scott decision that overturned the Missouri Compromise eventually led to the Civil War. Prohibition led to the almost complete breakdown of civil authority in some areas, such as Chicago, and to the entrenchment of organized crime.
It is thus a supreme irony that America's first black president (who was also a senator from Illinois), who should be more sensitive than anyone else to the consequences of laws that force people to act contrary to conscience, has announced that he will not negotiate or give ground in any way on the issue of forcing religious institutions to violate religious principles. President Obama seems determined to overturn the "compromise" of Roe v. Wade and impose a modern day Dred Scott decision.
From his perspective, Obama's actions are eminently reasonable, and he has what appears to be solid support for his move, legally, politically and economically. Justice Roger Brooke Taney, of course, in 1857 believed he had equally firm support for the Dred Scott decision, which according to William Crosskey was a blatant attack on the Constitution of the United States. The Fugitive Slave Act, despite its futility, demonstrated the support of the federal government for slavery, as would the use of government troops to put down John Brown's raid on Harper's Ferry in 1859. David Christy's Cotton is King in 1855 argued that the economic survival of the United States and the British Empire depended absolutely on chattel slavery.
Obama has every reason to believe that the American bishops — and, of course, the laity of the Catholic Church whose votes ensured his election in 2008 — will (after a suitable display of bravado and bluster) cave in. The bishops' protests over Obama being granted an honorary degree from the University of Notre Dame, bestowed by University President Father John Jenkins in open defiance of the bishops' authority, were clearly nothing for anyone to worry about, a tempest in a teapot. The bishops obviously lacked the power to keep even a single Catholic institution, and that one a virtual icon of American Catholicism, in line. The controversy (such as it was) blew over. Father Jenkins was not called to book for his act, and was even regarded as a Pro-Choice hero by many for what was characterized as a courageous stand in going with public opinion.
To clinch the matter from Obama's perspective, by allowing the State to become (as one enthusiast put it) "the sole intercessor available to the poor" (i.e., the source of every material good), the bishops have necessarily abrogated their moral authority. The bishops, now dependent on the State for funding the social programs they believe to be essential, are going to be forced to obey, despite anything they say. They have always given ground before, and the contraception mandate is no different from previous confrontations in which the bishops demonstrated their complete lack of power.
#30#
Friday, March 9, 2012
News from the Network, Vol. 5, No. 10
We've made a number of advances this week, but they are of the sort that make for difficult, if not incomprehensible reading in short sound bytes like this weekly news roundup. Such things are usually the subject of papers given before learned gatherings of academics and politicians who only appear to be listening politely in order to get a polite reception when they get up to present their views. This guarantees that the words "enthusiastic" appear with "reception" in reports of such gatherings, meaning that there was a scattering of applause and no dead cats or rotten tomatoes put in an appearance.
Nevertheless, a number of significant events have happened, highlighting the fact that, despite what the major media say, there is significant doubt growing about the plausibility of the so-called economic recovery, or the viability of what is proposed by any candidate or incumbent in the upcoming U.S. election:
• Unemployment figures are more optimistic for February, but we believe this is illusory. Not only are the statistics clearly being manipulated in order to quell public outrage, even the un-spin-doctored figures are misleading. For example, in the 1930s, the two-income family was an anomaly. Women typically stopped working for outside employers once they got married. An 8% unemployment rate today could reasonably understood in 1930s terms as 12-15%. Thus, the "unofficial" unemployment rate that has been hovering just under 20% today would be the equivalent of 30-40% in 1930s terms.
• Binary economics, "the economics of reality," is necessarily based on the natural law rights of life, liberty (freedom of association/contract) and property. In accounting and legal terms, this translates into a sort of "macro double entry bookkeeping," expressed through the accounting equation, Assets = Liabilities + Owners Equity (Contributed Capital and Retained Earnings), and the Quantity Theory of Money, M x V = P x Q. Both equations are different ways of applying Say's Law of Markets through the real bills doctrine on a theoretical basis. Capital Homesteading applies Say's Law and the real bills doctrine on a practical basis. Norman Kurland's paper, "A New Look at Prices and Money" brings theory and practice together, and eliminates the artificial distinction between micro- and macroeconomics. The current crop of candidates for office in the United States (and the world, for that matter), must seriously consider Capital Homesteading and, if they have doubts about its theoretical soundness, read Harold Moulton's The Formation of Capital (1935), (or just the Foreword to the CESJ edition) Louis Kelso and Mortimer Adler's The New Capitalists (1961), and Norman Kurland's "Prices and Money" paper.
• According to Bryan R. Lawrence in the Washington Post ("A Debt Too Rarely Mentioned," 03/02/12, A21), "The current costs of Social Security and Medicare are 14 times the government's 2011 revenue. Yet the Treasury won't recognize them in accounting." Lawrence refers to the present value of the promises being made by the government that obligate it to pay out benefits in the future, and points out that private employers must recognize these costs, whereas the government exempts itself from this requirement. We can speculate that part of the rationale may be the myth that all government has to do to retire its obligations is to print more money under the delusion that this process simply divides existing wealth into smaller and smaller bits, but this ignores the present value of future wealth. If there is little or no new capital formation, production of marketable goods and services falls, and there is less future wealth to tax to meet the obligations when they fall due. The most serious danger at that point is that the price level will begin rising faster than government prints money, igniting a hyperinflationary firestorm.
• Joe Recinos is back in town. He has located a Spanish translation that was made of The Capitalist Manifesto (1958) and will be reviewing the text for possible republication at some future date.
• If you're a little tired of all the grim economic news and you have a Kindle reader, give yourself a break by reading a couple of Universal Values Media's new and inexpensive "lite" Just Third Way fiction that can be found here.
• As of this morning, we have had visitors from 58 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, India, and the Philippines. People in Venezuela, Argentina, Australia, Ireland and Poland spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Crimes of Rick Santorum," "E. J. Dionne v. Citizens United," and "Toward a False Equality."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Nevertheless, a number of significant events have happened, highlighting the fact that, despite what the major media say, there is significant doubt growing about the plausibility of the so-called economic recovery, or the viability of what is proposed by any candidate or incumbent in the upcoming U.S. election:
• Unemployment figures are more optimistic for February, but we believe this is illusory. Not only are the statistics clearly being manipulated in order to quell public outrage, even the un-spin-doctored figures are misleading. For example, in the 1930s, the two-income family was an anomaly. Women typically stopped working for outside employers once they got married. An 8% unemployment rate today could reasonably understood in 1930s terms as 12-15%. Thus, the "unofficial" unemployment rate that has been hovering just under 20% today would be the equivalent of 30-40% in 1930s terms.
• Binary economics, "the economics of reality," is necessarily based on the natural law rights of life, liberty (freedom of association/contract) and property. In accounting and legal terms, this translates into a sort of "macro double entry bookkeeping," expressed through the accounting equation, Assets = Liabilities + Owners Equity (Contributed Capital and Retained Earnings), and the Quantity Theory of Money, M x V = P x Q. Both equations are different ways of applying Say's Law of Markets through the real bills doctrine on a theoretical basis. Capital Homesteading applies Say's Law and the real bills doctrine on a practical basis. Norman Kurland's paper, "A New Look at Prices and Money" brings theory and practice together, and eliminates the artificial distinction between micro- and macroeconomics. The current crop of candidates for office in the United States (and the world, for that matter), must seriously consider Capital Homesteading and, if they have doubts about its theoretical soundness, read Harold Moulton's The Formation of Capital (1935), (or just the Foreword to the CESJ edition) Louis Kelso and Mortimer Adler's The New Capitalists (1961), and Norman Kurland's "Prices and Money" paper.
• According to Bryan R. Lawrence in the Washington Post ("A Debt Too Rarely Mentioned," 03/02/12, A21), "The current costs of Social Security and Medicare are 14 times the government's 2011 revenue. Yet the Treasury won't recognize them in accounting." Lawrence refers to the present value of the promises being made by the government that obligate it to pay out benefits in the future, and points out that private employers must recognize these costs, whereas the government exempts itself from this requirement. We can speculate that part of the rationale may be the myth that all government has to do to retire its obligations is to print more money under the delusion that this process simply divides existing wealth into smaller and smaller bits, but this ignores the present value of future wealth. If there is little or no new capital formation, production of marketable goods and services falls, and there is less future wealth to tax to meet the obligations when they fall due. The most serious danger at that point is that the price level will begin rising faster than government prints money, igniting a hyperinflationary firestorm.
• Joe Recinos is back in town. He has located a Spanish translation that was made of The Capitalist Manifesto (1958) and will be reviewing the text for possible republication at some future date.
• If you're a little tired of all the grim economic news and you have a Kindle reader, give yourself a break by reading a couple of Universal Values Media's new and inexpensive "lite" Just Third Way fiction that can be found here.
• As of this morning, we have had visitors from 58 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, India, and the Philippines. People in Venezuela, Argentina, Australia, Ireland and Poland spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Crimes of Rick Santorum," "E. J. Dionne v. Citizens United," and "Toward a False Equality."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Thursday, March 8, 2012
The Crimes of Mitt Romney
A couple of weeks ago we did a posting on the Crimes of Rick Santorum. Dana Milbank, a Washington Post columnist, claimed to know what Santorum was really thinking when Santorum didn't call President Obama a Nazi. In typical schoolyard fashion, of course, Milbank's whole point was that the real Nazis are people who call others Nazis, even when they don't.
In today's Washington Post, E. J. Dionne — a much better and far more clever writer than Milbank — does a number on Mitt Romney. In "The Tolerable GOP Candidate" (Washington Post, 03/08/12, A17), Dionne doesn't claim to know what Romney is thinking or what he really means. Instead, Dionne reports facts and puts a reasonable interpretation on those facts. This masks the innuendo that, if the American people are stupid enough to elect Romney, they are going to end up with another Richard Nixon . . . and everybody knows what that would be like.
Dionne does this so skillfully that most readers might not consciously realize just how carefully they are led to equate Romney with Nixon. Dionne concludes his opening paragraph by describing Romney's campaign as "part John McCain, part Michael Dukakis and part Richard Nixon. [Emphasis added.]
Watergate — the only thing most people remember about Nixon's campaign — is thereby seeded in the reader's mind. Dionne then goes on to describe Romney's "achievements" in terms that make them sound like the best of "Tricky Dick's" tricks: "flexible views," "a rather satisfied man who has to announce that he's angry," "millions of dollars in advertising to discredit his opponents," "adjust[ed] or reverse[d] many of his positions," "He needs to win now. He'll count the costs later" (the Machiavellian "ends justify the means"), and so on — and on, and on.
Dionne finishes off his masterful character assassination by declaring "it is Nixon, rival to Romney's father in 1968, who provides the words that may best explain how Mitt Romney is managing his way toward a tepid triumph." Again, not a word about Watergate or Nixon's spectacular fall. It isn't necessary. Even the subtle hint that Romney is betraying his own father by emulating Nixon the Malevolent, while useful to show just how "flexible" Romney can be, doesn't add much.
By raising the specter of Nixon and drawing a parallel between Romney and the Evil One, Dionne succeeds where Milbank failed, leading readers to view Romney as another Nixon, with the ability to sway the Army of Darkness (a.k.a., "the Tea Partyers and the Christian conservatives and the Southerners") to vote for him. And thus, as Dionne concludes, "as it was for Nixon, this may be enough."
He might as well have lamented, as a 17th century "Planter" in Ireland did in his diary on July 23, 1633 on learning that the king's "evil counselor" and notoriously flexible politician Thomas Wentworth was appointed Lord Deputy of Ireland, "The Lord Viscount Wentworth came to Ireland to governe the kingdom. Manie men feare."
Not a word, of course, about Romney's real failing: economic recovery proposals that take no account of "the economics of reality" and the need for a program of expanded capital ownership, such as Ronald Reagan supported, financed with pure credit, that we call Capital Homesteading.
#30#
In today's Washington Post, E. J. Dionne — a much better and far more clever writer than Milbank — does a number on Mitt Romney. In "The Tolerable GOP Candidate" (Washington Post, 03/08/12, A17), Dionne doesn't claim to know what Romney is thinking or what he really means. Instead, Dionne reports facts and puts a reasonable interpretation on those facts. This masks the innuendo that, if the American people are stupid enough to elect Romney, they are going to end up with another Richard Nixon . . . and everybody knows what that would be like.
Dionne does this so skillfully that most readers might not consciously realize just how carefully they are led to equate Romney with Nixon. Dionne concludes his opening paragraph by describing Romney's campaign as "part John McCain, part Michael Dukakis and part Richard Nixon. [Emphasis added.]
Watergate — the only thing most people remember about Nixon's campaign — is thereby seeded in the reader's mind. Dionne then goes on to describe Romney's "achievements" in terms that make them sound like the best of "Tricky Dick's" tricks: "flexible views," "a rather satisfied man who has to announce that he's angry," "millions of dollars in advertising to discredit his opponents," "adjust[ed] or reverse[d] many of his positions," "He needs to win now. He'll count the costs later" (the Machiavellian "ends justify the means"), and so on — and on, and on.
Dionne finishes off his masterful character assassination by declaring "it is Nixon, rival to Romney's father in 1968, who provides the words that may best explain how Mitt Romney is managing his way toward a tepid triumph." Again, not a word about Watergate or Nixon's spectacular fall. It isn't necessary. Even the subtle hint that Romney is betraying his own father by emulating Nixon the Malevolent, while useful to show just how "flexible" Romney can be, doesn't add much.
By raising the specter of Nixon and drawing a parallel between Romney and the Evil One, Dionne succeeds where Milbank failed, leading readers to view Romney as another Nixon, with the ability to sway the Army of Darkness (a.k.a., "the Tea Partyers and the Christian conservatives and the Southerners") to vote for him. And thus, as Dionne concludes, "as it was for Nixon, this may be enough."
He might as well have lamented, as a 17th century "Planter" in Ireland did in his diary on July 23, 1633 on learning that the king's "evil counselor" and notoriously flexible politician Thomas Wentworth was appointed Lord Deputy of Ireland, "The Lord Viscount Wentworth came to Ireland to governe the kingdom. Manie men feare."
Not a word, of course, about Romney's real failing: economic recovery proposals that take no account of "the economics of reality" and the need for a program of expanded capital ownership, such as Ronald Reagan supported, financed with pure credit, that we call Capital Homesteading.
#30#
Wednesday, March 7, 2012
Ye Olde Equity Shoppe
The guiding myth of "the stock market" is that "it" (as if there was only one) is somehow a leading indicator of economic health. If "the stock market" does well, the economy is going great guns. If there is a drop in the market, universal despair ensues at this sign that the economy is once again in a tailspin and about to crash and burn.
The fact is, however, that "the stock market" is no more an indicator of the general health of the economy than the market for secondhand clothing indicates how well Abercrombie and Fitch are doing. "The stock market" (hereinafter the stock market because we're tired of typing quotes just to make a minor point) is, essentially, a secondhand shop for existing corporate debt and equity — that is, after all, why it's called "the secondary market."
As for the myth that the stock market "allocates credit" for new capital formation, within the paradigm dictated by the mainstream schools of economics, every dollar spent in the market for existing shares is one dollar less available for new capital formation. This baffled analysts during the speculative boom leading up to the 1929 Crash, as they could not understand that money was being created for both new capital investment and speculation at a tremendous rate, not taken out of existing accumulations of savings for either purpose.
From a Just Third Way perspective, of course, we are fully aware that capital is not generally financed out of existing accumulations of savings. Money and credit (two forms of the same thing) is not a commodity with a price fixed by supply and demand, but a system of agreements that expands and contracts at need.
Further, even a casual glance at the rates of economic growth experienced for the past four hundred years demonstrates the basic fallacy of assuming that it is necessary to reduce consumption in order to finance new capital and increase production. On the contrary, the incredible growth experienced in the modern era was financed not by cutting consumption, but by increasing production — "future savings" rather than "past savings."
Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, demonstrated this in his book, The Formation of Capital, published in 1935 to present an alternative to the Keynesian New Deal . . . which assumed as a given that all capital formation, new or otherwise, is necessarily financed out of existing accumulations of savings.
Given these basic facts about money, credit, banking and finance, we were pleased to receive a question about how purchases of new equity shares might be handled under Capital Homesteading. Our correspondent asked,
"Exactly what would be purchased with the credit to each citizen from the Federal Reserve? Is it shares of stock in one corporation? A sector of the economy? A mutual fund? Or a combination of the above? Will the proposed citizen purchasing be done through a separate exchange as opposed to the New York Stock Exchange or the American Stock Exchange?"
Here's how we answer that question:
In Capital Homesteading, "preference" will be given to people purchasing shares in the company in which they or members of their families work. This would not be a legal, but a "cultural" requirement. For example, just how committed are you to the family farm or business if you use your credit voucher to purchase shares in a competitor's farm or business instead of improving your own? People who don't want to buy in to the company usually "get suggested to resign" as they say.
Obviously such a purchase would not ordinarily go through the exchanges. Keep in mind that a stock exchange is, essentially, a "second hand shoppe" for existing debt and equity issues. Even IPOs — "Initial Public Offerings" — are not sold on the exchanges. Instead, they are "placed" with investment bankers who sell them to their clients. The brokers on the exchanges only buy and sell shares and bonds when the original people who bought them sell them. They can't usually sell a public offering back to the company or the investment banker that sold them to them, and usually end up going to some broker (either directly or through their own broker) who has a buyer.
In the current environment geared toward speculation instead of investment, of course, this encourages "flipping." We believe, however, that flipping will tend to diminish with Capital Homesteading and its emphasis on dividends rather than changes in the share value. (In the current environment, some IPOs get flipped several times in the first day, as speculators take a quick profit in response to rapid price changes.)
If an equity issue that is publicly traded on the exchanges includes full payout of dividends and the vote, then it would qualify for Capital Homestead credit. Where, after all, will the accumulated shares go when somebody dies and the heirs are already "full up"? The shares will likely be sold through an exchange to other people who need qualified shares, and the heirs take the money and recognize it as regular income.
The focus of Capital Homesteading, however, is on new share issuances, used to finance the annual "growth ring" of new capital. The exchanges are for trading existing capital, not floating new issuances. A company that is financing new capital will put together a new equity issue and "float" it. In the bad old days before Capital Homesteading, this will have meant finding a rich man to buy it, or an investment bank that could sell the securities to a rich man, institutional investor, mutual fund, and so on.
Under Capital Homesteading, although the details will have to be worked out — it can't be done before the legislation is written because the specific method or system has to conform to the law — absent a direct placement with its own workers, the company might either place shares directly with commercial banks that will then sell them to their customers for their Capital Homestead Account. This is probably a bad idea. We want to separate commercial from investment banking in all cases, not just for large or institutional investors.
That might mean, then, that new equity issues will be placed with an investment bank that serves as a "wholesaler," does due diligence, and provides a "catalog" of prospectuses to commercial banks which can then do their own due diligence and assist their customers in selecting shares for their Capital Homestead Accounts.
The commercial bank customer — the Capital Homesteader — makes the selection of shares. He or she then signs a note for the acquisition cost which the commercial bank accepts ("discounts") after receiving approval from the capital credit insurer — adding another level of oversight and due diligence.
The commercial bank then rediscounts the note at the local Federal Reserve. On accepting the note, the Federal Reserve issues a promissory note and creates a demand deposit in the name of the commercial bank. The commercial bank draws on this demand deposit to fund the demand deposit the commercial bank now creates in the name of the Capital Homesteader. The Capital Homesteader's demand deposit is immediately expended on the purchase of the selected shares. A check goes to the investment bank, which subtracts its fee and hands the money over to the companies that issued the shares.
To add another level of security, some people might organize Capital Homestead mutual funds of qualified shares. Companies would place their shares with investment banks, which would then place them with the Capital Homestead mutual funds. The investment bank would include the prospectus of the mutual fund in its "catalog" just as for a regular share offering, and shares of the mutual fund would be purchased through commercial banks the same as for regular Capital Homestead shares.
A possible scenario is that, in the initial stages of Capital Homesteading and where shares are not purchased in the company where a member of the family works, the preference will be for such mutual fund Capital Homestead shares instead of directly owned corporate or other equity. As people become more accustomed to and comfortable with ownership and the ownership culture is rebuilt (what Hilaire Belloc called "the restoration of property"), the preference will naturally shift to direct ownership of corporate and other equity instead of Capital Homestead mutual funds.
This is because a "smart" investor (or one with a "smart" adviser) will tend to do at least as well as a mutual fund — especially in the shares of the company in which he or she works — and not have to pay the fee that a mutual fund would charge. There would have to be a number of mutual funds to ensure competition and diversity, but as a major player, they would probably only be significant for twenty years or so, although there would always be a role for them, just as there will probably be for the ESOP, which we view as a transitional vehicle on the way to a Capital Homestead Act.
The stock exchanges will, of course, continue to function pretty much as today, although with a vastly increased customer base and volume of transactions. The difference will be that nobody will be under the illusion that these secondhand shops are the primary, productive market. The secondary market will still be important for determining risk and handling the transfer of existing equity and debt, but it will be seen as clearly ancillary to the primary market that really drives the economy.
#30#
The fact is, however, that "the stock market" is no more an indicator of the general health of the economy than the market for secondhand clothing indicates how well Abercrombie and Fitch are doing. "The stock market" (hereinafter the stock market because we're tired of typing quotes just to make a minor point) is, essentially, a secondhand shop for existing corporate debt and equity — that is, after all, why it's called "the secondary market."
As for the myth that the stock market "allocates credit" for new capital formation, within the paradigm dictated by the mainstream schools of economics, every dollar spent in the market for existing shares is one dollar less available for new capital formation. This baffled analysts during the speculative boom leading up to the 1929 Crash, as they could not understand that money was being created for both new capital investment and speculation at a tremendous rate, not taken out of existing accumulations of savings for either purpose.
From a Just Third Way perspective, of course, we are fully aware that capital is not generally financed out of existing accumulations of savings. Money and credit (two forms of the same thing) is not a commodity with a price fixed by supply and demand, but a system of agreements that expands and contracts at need.
Further, even a casual glance at the rates of economic growth experienced for the past four hundred years demonstrates the basic fallacy of assuming that it is necessary to reduce consumption in order to finance new capital and increase production. On the contrary, the incredible growth experienced in the modern era was financed not by cutting consumption, but by increasing production — "future savings" rather than "past savings."
Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, demonstrated this in his book, The Formation of Capital, published in 1935 to present an alternative to the Keynesian New Deal . . . which assumed as a given that all capital formation, new or otherwise, is necessarily financed out of existing accumulations of savings.
Given these basic facts about money, credit, banking and finance, we were pleased to receive a question about how purchases of new equity shares might be handled under Capital Homesteading. Our correspondent asked,
"Exactly what would be purchased with the credit to each citizen from the Federal Reserve? Is it shares of stock in one corporation? A sector of the economy? A mutual fund? Or a combination of the above? Will the proposed citizen purchasing be done through a separate exchange as opposed to the New York Stock Exchange or the American Stock Exchange?"
Here's how we answer that question:
In Capital Homesteading, "preference" will be given to people purchasing shares in the company in which they or members of their families work. This would not be a legal, but a "cultural" requirement. For example, just how committed are you to the family farm or business if you use your credit voucher to purchase shares in a competitor's farm or business instead of improving your own? People who don't want to buy in to the company usually "get suggested to resign" as they say.
Obviously such a purchase would not ordinarily go through the exchanges. Keep in mind that a stock exchange is, essentially, a "second hand shoppe" for existing debt and equity issues. Even IPOs — "Initial Public Offerings" — are not sold on the exchanges. Instead, they are "placed" with investment bankers who sell them to their clients. The brokers on the exchanges only buy and sell shares and bonds when the original people who bought them sell them. They can't usually sell a public offering back to the company or the investment banker that sold them to them, and usually end up going to some broker (either directly or through their own broker) who has a buyer.
In the current environment geared toward speculation instead of investment, of course, this encourages "flipping." We believe, however, that flipping will tend to diminish with Capital Homesteading and its emphasis on dividends rather than changes in the share value. (In the current environment, some IPOs get flipped several times in the first day, as speculators take a quick profit in response to rapid price changes.)
If an equity issue that is publicly traded on the exchanges includes full payout of dividends and the vote, then it would qualify for Capital Homestead credit. Where, after all, will the accumulated shares go when somebody dies and the heirs are already "full up"? The shares will likely be sold through an exchange to other people who need qualified shares, and the heirs take the money and recognize it as regular income.
The focus of Capital Homesteading, however, is on new share issuances, used to finance the annual "growth ring" of new capital. The exchanges are for trading existing capital, not floating new issuances. A company that is financing new capital will put together a new equity issue and "float" it. In the bad old days before Capital Homesteading, this will have meant finding a rich man to buy it, or an investment bank that could sell the securities to a rich man, institutional investor, mutual fund, and so on.
Under Capital Homesteading, although the details will have to be worked out — it can't be done before the legislation is written because the specific method or system has to conform to the law — absent a direct placement with its own workers, the company might either place shares directly with commercial banks that will then sell them to their customers for their Capital Homestead Account. This is probably a bad idea. We want to separate commercial from investment banking in all cases, not just for large or institutional investors.
That might mean, then, that new equity issues will be placed with an investment bank that serves as a "wholesaler," does due diligence, and provides a "catalog" of prospectuses to commercial banks which can then do their own due diligence and assist their customers in selecting shares for their Capital Homestead Accounts.
The commercial bank customer — the Capital Homesteader — makes the selection of shares. He or she then signs a note for the acquisition cost which the commercial bank accepts ("discounts") after receiving approval from the capital credit insurer — adding another level of oversight and due diligence.
The commercial bank then rediscounts the note at the local Federal Reserve. On accepting the note, the Federal Reserve issues a promissory note and creates a demand deposit in the name of the commercial bank. The commercial bank draws on this demand deposit to fund the demand deposit the commercial bank now creates in the name of the Capital Homesteader. The Capital Homesteader's demand deposit is immediately expended on the purchase of the selected shares. A check goes to the investment bank, which subtracts its fee and hands the money over to the companies that issued the shares.
To add another level of security, some people might organize Capital Homestead mutual funds of qualified shares. Companies would place their shares with investment banks, which would then place them with the Capital Homestead mutual funds. The investment bank would include the prospectus of the mutual fund in its "catalog" just as for a regular share offering, and shares of the mutual fund would be purchased through commercial banks the same as for regular Capital Homestead shares.
A possible scenario is that, in the initial stages of Capital Homesteading and where shares are not purchased in the company where a member of the family works, the preference will be for such mutual fund Capital Homestead shares instead of directly owned corporate or other equity. As people become more accustomed to and comfortable with ownership and the ownership culture is rebuilt (what Hilaire Belloc called "the restoration of property"), the preference will naturally shift to direct ownership of corporate and other equity instead of Capital Homestead mutual funds.
This is because a "smart" investor (or one with a "smart" adviser) will tend to do at least as well as a mutual fund — especially in the shares of the company in which he or she works — and not have to pay the fee that a mutual fund would charge. There would have to be a number of mutual funds to ensure competition and diversity, but as a major player, they would probably only be significant for twenty years or so, although there would always be a role for them, just as there will probably be for the ESOP, which we view as a transitional vehicle on the way to a Capital Homestead Act.
The stock exchanges will, of course, continue to function pretty much as today, although with a vastly increased customer base and volume of transactions. The difference will be that nobody will be under the illusion that these secondhand shops are the primary, productive market. The secondary market will still be important for determining risk and handling the transfer of existing equity and debt, but it will be seen as clearly ancillary to the primary market that really drives the economy.
#30#
Tuesday, March 6, 2012
Book Value v. Fair Market Value
Recently we were asked why ESOPs use "Fair Market Value" instead of "Book Value" when acquiring shares and making distributions to participants. The quick and easy answer is that the Internal Revenue Code and the Department of Labor regulations that interpret the IRC require that ESOPs cannot pay more than appraised Fair Market Value when acquiring the shares, and must pay out benefits to participants using the most recent appraisal.
As it states in the "ESOP Requirements" section of Title 26 of the Federal Code, 54.4975-11,
"(5) Valuation. For purposes of 54.49757(b) (9) and (12) and this section, valuations must be made in good faith and based on all relevant factors for determining the fair market value of securities. In the case of a transaction between a plan and a disqualified person, value must be determined as of the date of the transaction. For all other purposes under this subparagraph (5), value must be determined as of the most recent valuation date under the plan. An independent appraisal will not in itself be a good faith determination of value in the case of a transaction between a plan and a disqualified person. However, in other cases, a determination of fair market value based on at least an annual appraisal independently arrived at by a person who customarily makes such appraisals and who is independent of any party to a transaction under 54.49757(b) (9) and (12) will be deemed to be a good faith determination of value."
There are many acceptable methods of determining "Fair Market Value," e.g., discounted projected cash flow, comparable enterprises, and so on, but the very best is a genuine "arm's length" offer for the company, i.e., what a willing buyer and a willing seller agree between them is fair. All valuation methods attempt to reach this figure in the absence of such an offer.
So, why not "Book Value"? The simple answer is, "Because the IRS says so." The actual reason is that book value, defined as acquisition cost less depreciation, does not necessarily — and in most cases does not actually — bear any relation to the real value of the capital assets owned by the company, either individually or joined as a "going concern." Book value simply wouldn't be fair to ESOP participants, paying them out in most cases at a value far below the actual value of the company as a viable enterprise producing marketable goods and services.
For example, an assembly line in a manufacturing plant is composed of many individual capital goods. The productive capacity of any individual piece taken by itself, regardless of its cost, might be zero. Assembled as a system, however, all the parts work together and become productive. The capital cost of the entire, larger system of which the assembly line is a component from start to finish may have cost, e.g., $1 million, but produces goods with a retail value of $2 million every day. Is the value of that company the book value — that is, the cost of the capital assets less depreciation? Or is it the present value of the production that comes out of the company every day projected over the remaining useful life of the assets?
That's not a ridiculous example, either. Using a few simple hand tools that, total, cost much less than $100 — a saw, chisel, mallet, a drill and bits — and some relatively inexpensive materials such as 2x4s and 2x6s, screws, pegs, glue and a couple of hinges, you can make a "Morris chair," a reclining armchair, that sells for anywhere from $500 on up. Nor do the tools wear out very fast. They can be reused, sometimes for a century or more, making the capital investment negligible compared to the value of the product.
So, let's add a "complication." Suppose that the assets owned by a company are fully depreciated, and thus have a book value of zero. Is the value of that company — and thus the shares owned by the workers — also zero? Going by book value . . . yes. Using book value in an ESOP transaction would cheat workers by "paying" them out at a value of zero.
Someone may argue that labor is adding all value, and that once it is fully depreciated, an asset is, in fact, worth nothing. The owner of the capital has recovered his or her cost, the "congealed labor," in the form of recognizing the depreciation expense over time, and that is all he or she is entitled to. All other value is added by labor, and therefore labor is entitled to all profits from production; the capital contributes nothing other than its cost, which is the owner's congealed labor. This was Marx's argument in Das Kapital. If there are profits in excess of labor's contribution and the cost of the capital (congealed labor), it represents surplus value stolen from the consumer.
The problem is that Marx's analysis falls apart when confronted with reality. He stumbled badly when trying to explain, for example, why diamonds, that might require little labor to acquire if you happen to look down and find one, are so valuable. Of course, Marx assumed that all diamonds are used only for jewelry, but most are used in industry as abrasives. Regardless of the cost of finding them, industrial diamonds are in high demand because of their utility, and are consequently of high value.
Under the Marxist analysis, of course, there is no economic incentive for anyone to engage in productive activity — not even for yourself, for you are (presumably) guaranteed what you need regardless of your contribution of labor or capital. As Marx stated the principle in his Critique of the Gotha Program (1875), "Jeder nach seinen Fähigkeiten, jedem nach seinen Bedürfnissen!" — "From each according to his abilities, to each according to his needs!"
In any event, labor in and of itself produces nothing, as even Marx acknowledged ("it does not count as labor"). Labor must be "mixed" with capital — that is, expended on something — before anything can be produced. Even waving your arms in the air "mixes" your labor with the air and moves it, producing a slight breeze, whereas in a vacuum (assuming you don't explode from the lack of pressure) you can wave your arms all you like and only exhaust yourself. That capital is an "independent variable" (though not autonomous) in the production process is demonstrated by the fact that you cannot produce anything with labor alone, but capital by itself — e.g., a completely automated factory — can be and is productive without an ongoing or direct human labor input.
The problem with marketable goods and services produced by capital, or predominantly by capital, is that if the capital is owned or controlled by a small number of people, as is the case in both capitalism and socialism, there is really no reason to produce. Unless consumption power is broadly distributed by having capital instruments widely owned, there will be no incentive to produce anything.
This is why under both capitalism and socialism the State steps in and attempts to enforce desired results. It does this by imposing more and more control on the economy through money manipulation, redistribution, and increasingly complex tax schemes — today's Internal Revenue Code sans all the voluminous regulations that tell you how to interpret the IRC runs to cir. 7,500 8-1/2 x 11 print pages: 3.4 million words. The policy is generally to try and balance the presumed need for the rich to save to finance new capital, and for the poor to spend to justify the new capital. Ultimately what results is what Hilaire Belloc called "the Servile State" as capitalism and socialism begin to resemble one another and finally merge.
Of course, lifting the barriers that inhibit or prevent propertyless citizens from becoming capital owners on the same terms as the rich — such as lack of access to capital credit and the demand for collateral — would solve the problem by emancipating humanity from the slavery of past savings. Capital Homesteading is designed to do just that. The question becomes how do we acquaint our leaders and prospective leaders with the advanced financing concepts of the Just Third Way to bring us out of this economic Slough of Despond?
To summarize our answer to the original question, however, insisting on using "book value" as the basis of distribution to ESOP participants would not only be unjust, but would effectively constitute a virtual rejection of reality verging on the delusional — as the current shape of the global economy bears witness.
#30#
As it states in the "ESOP Requirements" section of Title 26 of the Federal Code, 54.4975-11,
"(5) Valuation. For purposes of 54.49757(b) (9) and (12) and this section, valuations must be made in good faith and based on all relevant factors for determining the fair market value of securities. In the case of a transaction between a plan and a disqualified person, value must be determined as of the date of the transaction. For all other purposes under this subparagraph (5), value must be determined as of the most recent valuation date under the plan. An independent appraisal will not in itself be a good faith determination of value in the case of a transaction between a plan and a disqualified person. However, in other cases, a determination of fair market value based on at least an annual appraisal independently arrived at by a person who customarily makes such appraisals and who is independent of any party to a transaction under 54.49757(b) (9) and (12) will be deemed to be a good faith determination of value."
There are many acceptable methods of determining "Fair Market Value," e.g., discounted projected cash flow, comparable enterprises, and so on, but the very best is a genuine "arm's length" offer for the company, i.e., what a willing buyer and a willing seller agree between them is fair. All valuation methods attempt to reach this figure in the absence of such an offer.
So, why not "Book Value"? The simple answer is, "Because the IRS says so." The actual reason is that book value, defined as acquisition cost less depreciation, does not necessarily — and in most cases does not actually — bear any relation to the real value of the capital assets owned by the company, either individually or joined as a "going concern." Book value simply wouldn't be fair to ESOP participants, paying them out in most cases at a value far below the actual value of the company as a viable enterprise producing marketable goods and services.
For example, an assembly line in a manufacturing plant is composed of many individual capital goods. The productive capacity of any individual piece taken by itself, regardless of its cost, might be zero. Assembled as a system, however, all the parts work together and become productive. The capital cost of the entire, larger system of which the assembly line is a component from start to finish may have cost, e.g., $1 million, but produces goods with a retail value of $2 million every day. Is the value of that company the book value — that is, the cost of the capital assets less depreciation? Or is it the present value of the production that comes out of the company every day projected over the remaining useful life of the assets?
That's not a ridiculous example, either. Using a few simple hand tools that, total, cost much less than $100 — a saw, chisel, mallet, a drill and bits — and some relatively inexpensive materials such as 2x4s and 2x6s, screws, pegs, glue and a couple of hinges, you can make a "Morris chair," a reclining armchair, that sells for anywhere from $500 on up. Nor do the tools wear out very fast. They can be reused, sometimes for a century or more, making the capital investment negligible compared to the value of the product.
So, let's add a "complication." Suppose that the assets owned by a company are fully depreciated, and thus have a book value of zero. Is the value of that company — and thus the shares owned by the workers — also zero? Going by book value . . . yes. Using book value in an ESOP transaction would cheat workers by "paying" them out at a value of zero.
Someone may argue that labor is adding all value, and that once it is fully depreciated, an asset is, in fact, worth nothing. The owner of the capital has recovered his or her cost, the "congealed labor," in the form of recognizing the depreciation expense over time, and that is all he or she is entitled to. All other value is added by labor, and therefore labor is entitled to all profits from production; the capital contributes nothing other than its cost, which is the owner's congealed labor. This was Marx's argument in Das Kapital. If there are profits in excess of labor's contribution and the cost of the capital (congealed labor), it represents surplus value stolen from the consumer.
The problem is that Marx's analysis falls apart when confronted with reality. He stumbled badly when trying to explain, for example, why diamonds, that might require little labor to acquire if you happen to look down and find one, are so valuable. Of course, Marx assumed that all diamonds are used only for jewelry, but most are used in industry as abrasives. Regardless of the cost of finding them, industrial diamonds are in high demand because of their utility, and are consequently of high value.
Under the Marxist analysis, of course, there is no economic incentive for anyone to engage in productive activity — not even for yourself, for you are (presumably) guaranteed what you need regardless of your contribution of labor or capital. As Marx stated the principle in his Critique of the Gotha Program (1875), "Jeder nach seinen Fähigkeiten, jedem nach seinen Bedürfnissen!" — "From each according to his abilities, to each according to his needs!"
In any event, labor in and of itself produces nothing, as even Marx acknowledged ("it does not count as labor"). Labor must be "mixed" with capital — that is, expended on something — before anything can be produced. Even waving your arms in the air "mixes" your labor with the air and moves it, producing a slight breeze, whereas in a vacuum (assuming you don't explode from the lack of pressure) you can wave your arms all you like and only exhaust yourself. That capital is an "independent variable" (though not autonomous) in the production process is demonstrated by the fact that you cannot produce anything with labor alone, but capital by itself — e.g., a completely automated factory — can be and is productive without an ongoing or direct human labor input.
The problem with marketable goods and services produced by capital, or predominantly by capital, is that if the capital is owned or controlled by a small number of people, as is the case in both capitalism and socialism, there is really no reason to produce. Unless consumption power is broadly distributed by having capital instruments widely owned, there will be no incentive to produce anything.
This is why under both capitalism and socialism the State steps in and attempts to enforce desired results. It does this by imposing more and more control on the economy through money manipulation, redistribution, and increasingly complex tax schemes — today's Internal Revenue Code sans all the voluminous regulations that tell you how to interpret the IRC runs to cir. 7,500 8-1/2 x 11 print pages: 3.4 million words. The policy is generally to try and balance the presumed need for the rich to save to finance new capital, and for the poor to spend to justify the new capital. Ultimately what results is what Hilaire Belloc called "the Servile State" as capitalism and socialism begin to resemble one another and finally merge.
Of course, lifting the barriers that inhibit or prevent propertyless citizens from becoming capital owners on the same terms as the rich — such as lack of access to capital credit and the demand for collateral — would solve the problem by emancipating humanity from the slavery of past savings. Capital Homesteading is designed to do just that. The question becomes how do we acquaint our leaders and prospective leaders with the advanced financing concepts of the Just Third Way to bring us out of this economic Slough of Despond?
To summarize our answer to the original question, however, insisting on using "book value" as the basis of distribution to ESOP participants would not only be unjust, but would effectively constitute a virtual rejection of reality verging on the delusional — as the current shape of the global economy bears witness.
#30#
Monday, March 5, 2012
"How I Would Lead the World Bank"
The old Monty Python's Flying Circus had a sketch, "How To Do It," in which three completely fatuous hosts of a BBC show called How To Do It told you, well, How To Do It, that is, solve any problem. Take, for instance, How To Cure All Known Diseases:
John Cleese: "Here's Jackie to tell you all how to rid the world of all known diseases."
Eric Idle in Drag: "Hello, Alan."
Cleese: "Hello, Jackie."
Idle: "Well, first of all become a doctor, and discover a marvelous cure for something, and then, when the medical profession really starts to take notice of you, you can jolly well tell them what to do and make sure they get everything right so that there will never be any diseases ever again."
Cleese: "Thanks, Jackie. Great idea. Now, how to play the flute . . ."
The sketch was allegedly based on Blue Peter, the longest-running children's program in the world that debuted on the BBC in 1958, geared toward children ages 5 to 8. It presents facts and activities presumably geared toward that age level. The Monty Python sketch could thus be taken as an incisive and biting satire on the efforts of academics and world leaders who remain stuck in oversimplified and outdated paradigms and struggle vainly to solve increasingly desperate world problems, with spectacular failure the inevitable result.
Or it could just be a bit of fun, but that doesn't give us a segue into today's blog posting — a brief commentary on Jeffrey Sachs's column in this past Friday's Washington Post: "How I Would Lead the World Bank" (03/02/12, A21). Ostensibly simply a way of trying to force the decision by going public with his alleged qualifications for the job of president of the World Bank, Sachs's essay is, perhaps, a trifle more revealing than he intended.
Admittedly, we probably wouldn't even have looked at the column if somebody hadn't started laughing and exclaimed, "This sounds like a grade school composition!" Looking it over, it bore a striking resemblance to the sort of thing a teacher in elementary school would see if he or she handed out an assignment on "If I Were King of Poland," "If I Were a Fireman/Astronaut/Policeman," "How I Would Solve All Problems If I Had Three Wishes," etc.
Sachs boasts that, unlike previous presidents, he doesn't come out of Wall Street or the political world. He is thus not one of the fat cats who have screwed up the system with their partial understanding of the nature of money, credit, banking and finance, but "a practitioner of economic development, a scholar and a writer" who doesn't appear to take trivial details like money, credit, banking or finance into consideration at all. He is on the side of "the poor and hungry," not "a corporate balance sheet or a government." He sees the World Bank as "far more decisive than a bank." Where past World Bank presidents apparently knew how to make money for themselves, Sachs knows how to spend money for others. He is "a trusted problem-solver for heads of state and impoverished villagers."
And so on.
Sachs goes on at some length how he intends to spend money. There is not a single word of where he intends to get the money he proposes to spend with such a lavish hand. That has worked out so well for Greece.
Details, details.
Here's a wild and crazy idea. Instead of reinventing the World Bank to make it more than a bank, why not use it for the purpose for which banks of issue were invented? We agree that the World Bank has been ineffectual, but not because it hasn't been spending enough on Jeffrey Sachs's pet projects under his guidance. It's because the World Bank has not been used properly to back up national central banks that back up the local commercial banks that are supposed to provide liquidity for self-financing economic development.
A bank is not supposed to undertake development projects itself. The job of a commercial or mercantile bank, as a type of bank of issue, is to trade privately issued money in the form of bills of exchange based on the present value of existing or future marketable goods and services, for the bank's promissory note. The bank's promissory note can either be used directly as money itself, or to back a demand deposit. A nation's or region's central bank ensures that commercial banks can, in turn, trade the bills they accept for the promissory notes issued by the central bank. This ensures a uniform currency that, all things being equal, is stable and "elastic," expanding and contracting to meet the needs of the private sector. A central bank also usually oversees clearinghouse operations and provides emergency reserves to prevent "runs" and bank failures.
A central bank thus functions, in part, as a type of monetary insurance. The World Bank, even though a product of the post-World War II Keynesian revolution, could easily be fitted into a program of global monetary, financial and banking reform to restore sound currency by functioning as a central bank for the world's central banks — and thus as a type of monetary reinsurance.
This would mean, of course, that virtually everything Sachs wants to do if he becomes president of the World Bank is out the window. The banking reforms that need to take place immediately are:
• Take politics out of the system by discontinuing the monetization of government deficits. (While this is the most immediately critical, it is also the hardest, and probably can't be done at once. Instead, a "sunset date" would probably be expedient, although not ideal.)
• Restrict all commercial bank lending to qualified industrial, commercial and agricultural capital projects. Personal banking services — especially consumer loans — should be separated from commercial banking and spun off as separate, purely depository institutions. Terminate all non-productive lending by commercial and central banks, whether for personal consumption or government expenditure, at the earliest possible date.
• Investment banking must be separated from commercial banking, and the financial system reformed to implement proper internal controls to restore automatic checks and balances.
• Implement a program of expanded capital ownership (e.g., Capital Homesteading), financed by discounting properly vetted and financially sound private sector bills of exchange that are immediately rediscounted at the central bank and, if necessary to ensure stability during the process of restoring a sound, asset-backed currency, rediscounted again at the World Bank.
Or we could just put Jeffrey Sachs in as head of the World Bank so he can solve all of our problems by spending money we don't have.
Great idea, Jackie.
#30#
John Cleese: "Here's Jackie to tell you all how to rid the world of all known diseases."
Eric Idle in Drag: "Hello, Alan."
Cleese: "Hello, Jackie."
Idle: "Well, first of all become a doctor, and discover a marvelous cure for something, and then, when the medical profession really starts to take notice of you, you can jolly well tell them what to do and make sure they get everything right so that there will never be any diseases ever again."
Cleese: "Thanks, Jackie. Great idea. Now, how to play the flute . . ."
The sketch was allegedly based on Blue Peter, the longest-running children's program in the world that debuted on the BBC in 1958, geared toward children ages 5 to 8. It presents facts and activities presumably geared toward that age level. The Monty Python sketch could thus be taken as an incisive and biting satire on the efforts of academics and world leaders who remain stuck in oversimplified and outdated paradigms and struggle vainly to solve increasingly desperate world problems, with spectacular failure the inevitable result.
Or it could just be a bit of fun, but that doesn't give us a segue into today's blog posting — a brief commentary on Jeffrey Sachs's column in this past Friday's Washington Post: "How I Would Lead the World Bank" (03/02/12, A21). Ostensibly simply a way of trying to force the decision by going public with his alleged qualifications for the job of president of the World Bank, Sachs's essay is, perhaps, a trifle more revealing than he intended.
Admittedly, we probably wouldn't even have looked at the column if somebody hadn't started laughing and exclaimed, "This sounds like a grade school composition!" Looking it over, it bore a striking resemblance to the sort of thing a teacher in elementary school would see if he or she handed out an assignment on "If I Were King of Poland," "If I Were a Fireman/Astronaut/Policeman," "How I Would Solve All Problems If I Had Three Wishes," etc.
Sachs boasts that, unlike previous presidents, he doesn't come out of Wall Street or the political world. He is thus not one of the fat cats who have screwed up the system with their partial understanding of the nature of money, credit, banking and finance, but "a practitioner of economic development, a scholar and a writer" who doesn't appear to take trivial details like money, credit, banking or finance into consideration at all. He is on the side of "the poor and hungry," not "a corporate balance sheet or a government." He sees the World Bank as "far more decisive than a bank." Where past World Bank presidents apparently knew how to make money for themselves, Sachs knows how to spend money for others. He is "a trusted problem-solver for heads of state and impoverished villagers."
And so on.
Sachs goes on at some length how he intends to spend money. There is not a single word of where he intends to get the money he proposes to spend with such a lavish hand. That has worked out so well for Greece.
Details, details.
Here's a wild and crazy idea. Instead of reinventing the World Bank to make it more than a bank, why not use it for the purpose for which banks of issue were invented? We agree that the World Bank has been ineffectual, but not because it hasn't been spending enough on Jeffrey Sachs's pet projects under his guidance. It's because the World Bank has not been used properly to back up national central banks that back up the local commercial banks that are supposed to provide liquidity for self-financing economic development.
A bank is not supposed to undertake development projects itself. The job of a commercial or mercantile bank, as a type of bank of issue, is to trade privately issued money in the form of bills of exchange based on the present value of existing or future marketable goods and services, for the bank's promissory note. The bank's promissory note can either be used directly as money itself, or to back a demand deposit. A nation's or region's central bank ensures that commercial banks can, in turn, trade the bills they accept for the promissory notes issued by the central bank. This ensures a uniform currency that, all things being equal, is stable and "elastic," expanding and contracting to meet the needs of the private sector. A central bank also usually oversees clearinghouse operations and provides emergency reserves to prevent "runs" and bank failures.
A central bank thus functions, in part, as a type of monetary insurance. The World Bank, even though a product of the post-World War II Keynesian revolution, could easily be fitted into a program of global monetary, financial and banking reform to restore sound currency by functioning as a central bank for the world's central banks — and thus as a type of monetary reinsurance.
This would mean, of course, that virtually everything Sachs wants to do if he becomes president of the World Bank is out the window. The banking reforms that need to take place immediately are:
• Take politics out of the system by discontinuing the monetization of government deficits. (While this is the most immediately critical, it is also the hardest, and probably can't be done at once. Instead, a "sunset date" would probably be expedient, although not ideal.)
• Restrict all commercial bank lending to qualified industrial, commercial and agricultural capital projects. Personal banking services — especially consumer loans — should be separated from commercial banking and spun off as separate, purely depository institutions. Terminate all non-productive lending by commercial and central banks, whether for personal consumption or government expenditure, at the earliest possible date.
• Investment banking must be separated from commercial banking, and the financial system reformed to implement proper internal controls to restore automatic checks and balances.
• Implement a program of expanded capital ownership (e.g., Capital Homesteading), financed by discounting properly vetted and financially sound private sector bills of exchange that are immediately rediscounted at the central bank and, if necessary to ensure stability during the process of restoring a sound, asset-backed currency, rediscounted again at the World Bank.
Or we could just put Jeffrey Sachs in as head of the World Bank so he can solve all of our problems by spending money we don't have.
Great idea, Jackie.
#30#
Friday, March 2, 2012
News from the Network, Vol. 5, No. 9
As the pre-campaign campaign continues to heat up as the economy continues to cool down, it becomes increasingly evident, not only in the United States but throughout the world that rhetoric, name-calling and cheerleading without substance is not going to solve anything. Despite the tendency to blame "the other guy" for our political and, most especially, our economic troubles need real solutions, not ephemeral palliative care that tries to cushion the blow rather than take the club away. What is needed is for Capital Homesteading to receive from serious consideration from the candidates. Once that happens, the advantages will immediately be obvious.
• We are saddened to report the death of James Martin Greaney, 50, brother of CESJ's Director of Research. James died this past week in Evansville, Indiana, where he lived most of his life. Born in San Francisco, California, he moved with his family to southern Indiana in 1968, where he attended Corpus Christi Grade School and Mater Dei High School. An avid reader and history enthusiast, he was active in Scouting for many years. He is survived by his parents, five brothers, and two sisters.
• This past week we had a series of meetings that advanced the "door opening" initiative significantly. There is, of course, nothing concrete as yet, but prospects were identified and specific goals clarified. The current crop of candidates and potential candidates from both parties remain primary targets, of course. It is important to realize that, whatever we might think of any particular candidate or party personally, people who hold views different from our own have as much right to hold their opinions as we have to hold ours. As long as even the worst law or judicial decision does not force us personally to do wrong, we can tolerate it for a time for the sake of the social order. That does not mean that we can allow injustice to continue, however. Very much the contrary! We are obligated to join with others and organize to persuade those who disagree with us of the errors of their ways — fully aware that we run the risk of coming around to their point of view if our arguments are not persuasive! The moral of that, of course, is to have your arguments ready, and avoid at all cost rejecting the other side's position without hearing the argument and showing you understand it. All that does is lose you the argument before it begins.
• Michael D. Greaney, CESJ's Director of Research, has been asked to contribute some articles to Inside the Vatican magazine, integrating the Just Third Way and Catholic social teaching into the various economic proposals being bruited about in the current U.S. political campaign. The growing air of desperation, despite all the talk of "recovery," may be making people more open to the potential of Capital Homesteading, as it applies the three principles of economic justice: Participation, Distribution, and Harmony.
• Preparations for the CESJ Annual Celebration proceed apace. This year's event promises to be both enjoyable and educational, as well as helping provide orientation for the door-opening push to bring the potential inherent in Capital Homesteading to the attention of candidates for political office and incumbents.
• The annual rally outside the Federal Reserve in Washington, DC, to take place Friday, April 20, 2012 should also prove to be lively and informative, with a schedule of songs, drums and poetry (not all at the same time) to highlight the need for change and to put the money power back in the hands of the people. More information can be found on the "Fed Rally Flyer," which you are encouraged to download, print and distribute, especially at "Occupy" gatherings, Tea Party events, and colleges and universities (after obtaining official permission — we're out to change the system, not buck it). Churches, synagogues, mosques and civic organizations should also be interested in this effort that addresses the vital issue of personal sovereignty and human dignity.
• As of this morning, we have had visitors from 55 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, the Philippines and India. People in Venezuela, Hong Kong, Australia, the United States and India spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Crimes of Rick Santorum," "E. J. Dionne v. Citizens United," and "Toward a False Equality."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
• We are saddened to report the death of James Martin Greaney, 50, brother of CESJ's Director of Research. James died this past week in Evansville, Indiana, where he lived most of his life. Born in San Francisco, California, he moved with his family to southern Indiana in 1968, where he attended Corpus Christi Grade School and Mater Dei High School. An avid reader and history enthusiast, he was active in Scouting for many years. He is survived by his parents, five brothers, and two sisters.
• This past week we had a series of meetings that advanced the "door opening" initiative significantly. There is, of course, nothing concrete as yet, but prospects were identified and specific goals clarified. The current crop of candidates and potential candidates from both parties remain primary targets, of course. It is important to realize that, whatever we might think of any particular candidate or party personally, people who hold views different from our own have as much right to hold their opinions as we have to hold ours. As long as even the worst law or judicial decision does not force us personally to do wrong, we can tolerate it for a time for the sake of the social order. That does not mean that we can allow injustice to continue, however. Very much the contrary! We are obligated to join with others and organize to persuade those who disagree with us of the errors of their ways — fully aware that we run the risk of coming around to their point of view if our arguments are not persuasive! The moral of that, of course, is to have your arguments ready, and avoid at all cost rejecting the other side's position without hearing the argument and showing you understand it. All that does is lose you the argument before it begins.
• Michael D. Greaney, CESJ's Director of Research, has been asked to contribute some articles to Inside the Vatican magazine, integrating the Just Third Way and Catholic social teaching into the various economic proposals being bruited about in the current U.S. political campaign. The growing air of desperation, despite all the talk of "recovery," may be making people more open to the potential of Capital Homesteading, as it applies the three principles of economic justice: Participation, Distribution, and Harmony.
• Preparations for the CESJ Annual Celebration proceed apace. This year's event promises to be both enjoyable and educational, as well as helping provide orientation for the door-opening push to bring the potential inherent in Capital Homesteading to the attention of candidates for political office and incumbents.
• The annual rally outside the Federal Reserve in Washington, DC, to take place Friday, April 20, 2012 should also prove to be lively and informative, with a schedule of songs, drums and poetry (not all at the same time) to highlight the need for change and to put the money power back in the hands of the people. More information can be found on the "Fed Rally Flyer," which you are encouraged to download, print and distribute, especially at "Occupy" gatherings, Tea Party events, and colleges and universities (after obtaining official permission — we're out to change the system, not buck it). Churches, synagogues, mosques and civic organizations should also be interested in this effort that addresses the vital issue of personal sovereignty and human dignity.
• As of this morning, we have had visitors from 55 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, the Philippines and India. People in Venezuela, Hong Kong, Australia, the United States and India spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Aristotle on Private Property," "The Crimes of Rick Santorum," "E. J. Dionne v. Citizens United," and "Toward a False Equality."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Thursday, March 1, 2012
"Consigned to Oblivion"
The news is several years old — which makes one wonder why it's on the front page of the Washington Post instead of in a Sunday Supplement — but a trifle (that is to say, a lot) unnerving to a lot of academics whose careers have been dedicated to defending whatever was in their doctoral theses, come what may. It seems that there is some evidence to suggest that the "First Americans" may have been Caucasians from Europe, rather than Orientals from Asia.
We've been seeing this in various programs on PBS and books for quite some time. The reaction of the general public seems to be along the lines of, "How interesting. How'd the [fill in name of local sports team] do today?" The academics, however (as we might expect), are up in arms, using the usual weapons of dismissal and ridicule.
From the layman's perspective, it would certainly explain some otherwise odd things about the inhabitants found by the (second?) wave of European settlers. The further to the northwest they went, for example, the more Oriental the people looked. There were stories about finding blue-eyed Indians on the east coast, explained as proving that the Welsh (or Irish or Vikings) had clearly reached America in the fourth, fifth or tenth centuries. This could also be explained as the result of a more highly advanced culture coming into conflict with one at a lower stage of development, and conquering or absorbing it — or why, as one academic complained, "they [the alleged early European settlers] suffered cultural amnesia, genetic amnesia, dental amnesia, linguistic amnesia and skeletal amnesia." Yeah. After 15,000 years . . .
Be that as it may, the whole situation serves to highlight the problems associated with gaining general acceptance of such revolutionary concepts as the act of social justice or the banking principle found in binary economics. Getting either one of these concepts accepted by the establishment is difficult enough. Combining them appears to give academics and politicians who have committed themselves to individualism or collectivism instead of social justice, and to the idea that the State can and should be in total control of the money supply instead of devolving money power to the people what can only be described as "hissyfits" when they don't duck and avoid it altogether.
This is not entirely unexpected. Generally, new ideas — or revived old ones — go through three stages of acceptance (or lack thereof). The first stage is ridicule. The second is active resistance. The third and final stage is acceptance as if the idea had always been unquestioned orthodoxy. Nowhere does this seem more evident than with binary economics. While based solidly on natural law principles common to virtually all faiths and philosophies, the principles of binary economics and the various applications developed from it nevertheless tend to excite an almost visceral reaction from people who have committed themselves to the current, flawed paradigm.
The place of binary economics on the ridicule/resistance/acceptance spectrum seems to shift, depending on whom you're talking to. Anyone with an unthinking and unquestioning acceptance of the current paradigm tends to react with ridicule. Despite the seeming malice of this sort of thing, these people are actually the easiest to deal with. They don't bother to find out what the principles of binary economics actually are, or, in some cases, the precepts of the natural law or its basis.
That being the case, defining the principles of binary economics — or even the precepts or principles of the natural law are enough to decide the issue if the other person is reasonable. If the other person is not reasonable, then it's a useless endeavor, anyway.
Today, however, many of the people who have heard of binary economics and who react negatively are in the active resistance stage. That doesn't mean they are outside CESJ HQ demonstrating with picket signs or even torches and pitchforks.
Rather, there seems to be something of a panic mentality at work. Articles are written containing easily refuted errors, e.g., confusing Employee Stock OPTION Plans (not binary) with Employee Stock OWNERSHIP Plans (binary), or insisting in the face of hard evidence to the contrary that worker ownership puts an unjustifiable burden of risk on the workers because they can't afford to lose their small savings. Corrections or debate on these points almost always results in the author of the article claiming that we don't know what we're talking about, and refusing even to look at the evidence or hear the argument — thereby suggesting that the author may at some level suspect that we do know what we're talking about, and doesn't want to risk being the target of the ridicule that preceded the resistance.
(For the record, Employee Stock OPTION Plans require participants to put up their own money to exercise the option, and generally only result in income when the shares acquired are sold at a profit. An Employee Stock OWNERSHIP Plan may require participant contributions, but most do not. The whole idea of the ESOP is to empower workers without savings or the capacity to take cuts in pay to purchase shares in the companies that employ them on credit and repay the acquisition loan out of future dividends, thereafter receiving dividend income to supplement or, in some cases, replace wage income.
(As for savings, binary economics applies the "banking principle" to ESOP financing. That is, workers do not put up any of their own money. Instead, the bank or other financing source accepts the note or contract. The bank issues a promissory note that is signed by the representative of the ESOP Trust and — usually — guaranteed by the company. The promissory note is used to back a line of credit or loan, and the bank creates a demand deposit in the amount of the loan. This is used to purchase the company on behalf of the ESOP Trust. As the loan is repaid, the "new money" that was created by the acceptance of the contract and issuance of the promissory note is cancelled. While this same thing can be done by a bank lending out its capitalization or deposits, that is not the special function of a commercial bank, which serves to "monetize" the present value of existing and future marketable goods and services.)
What we in the Just Third Way look forward to is when people react to binary economics and its applications by asking us what all the fuss is about over something so obvious. There's still quite a ways to go before we reach that point, but there are definitely increasing signs that more people are becoming aware that "the usual" doesn't work and isn't going to work. The search for something more rational and more consistent with the natural law will gradually draw them away from the flawed systems of the past to the more socially and economically just system of the future.
#30#
We've been seeing this in various programs on PBS and books for quite some time. The reaction of the general public seems to be along the lines of, "How interesting. How'd the [fill in name of local sports team] do today?" The academics, however (as we might expect), are up in arms, using the usual weapons of dismissal and ridicule.
From the layman's perspective, it would certainly explain some otherwise odd things about the inhabitants found by the (second?) wave of European settlers. The further to the northwest they went, for example, the more Oriental the people looked. There were stories about finding blue-eyed Indians on the east coast, explained as proving that the Welsh (or Irish or Vikings) had clearly reached America in the fourth, fifth or tenth centuries. This could also be explained as the result of a more highly advanced culture coming into conflict with one at a lower stage of development, and conquering or absorbing it — or why, as one academic complained, "they [the alleged early European settlers] suffered cultural amnesia, genetic amnesia, dental amnesia, linguistic amnesia and skeletal amnesia." Yeah. After 15,000 years . . .
Be that as it may, the whole situation serves to highlight the problems associated with gaining general acceptance of such revolutionary concepts as the act of social justice or the banking principle found in binary economics. Getting either one of these concepts accepted by the establishment is difficult enough. Combining them appears to give academics and politicians who have committed themselves to individualism or collectivism instead of social justice, and to the idea that the State can and should be in total control of the money supply instead of devolving money power to the people what can only be described as "hissyfits" when they don't duck and avoid it altogether.
This is not entirely unexpected. Generally, new ideas — or revived old ones — go through three stages of acceptance (or lack thereof). The first stage is ridicule. The second is active resistance. The third and final stage is acceptance as if the idea had always been unquestioned orthodoxy. Nowhere does this seem more evident than with binary economics. While based solidly on natural law principles common to virtually all faiths and philosophies, the principles of binary economics and the various applications developed from it nevertheless tend to excite an almost visceral reaction from people who have committed themselves to the current, flawed paradigm.
The place of binary economics on the ridicule/resistance/acceptance spectrum seems to shift, depending on whom you're talking to. Anyone with an unthinking and unquestioning acceptance of the current paradigm tends to react with ridicule. Despite the seeming malice of this sort of thing, these people are actually the easiest to deal with. They don't bother to find out what the principles of binary economics actually are, or, in some cases, the precepts of the natural law or its basis.
That being the case, defining the principles of binary economics — or even the precepts or principles of the natural law are enough to decide the issue if the other person is reasonable. If the other person is not reasonable, then it's a useless endeavor, anyway.
Today, however, many of the people who have heard of binary economics and who react negatively are in the active resistance stage. That doesn't mean they are outside CESJ HQ demonstrating with picket signs or even torches and pitchforks.
Rather, there seems to be something of a panic mentality at work. Articles are written containing easily refuted errors, e.g., confusing Employee Stock OPTION Plans (not binary) with Employee Stock OWNERSHIP Plans (binary), or insisting in the face of hard evidence to the contrary that worker ownership puts an unjustifiable burden of risk on the workers because they can't afford to lose their small savings. Corrections or debate on these points almost always results in the author of the article claiming that we don't know what we're talking about, and refusing even to look at the evidence or hear the argument — thereby suggesting that the author may at some level suspect that we do know what we're talking about, and doesn't want to risk being the target of the ridicule that preceded the resistance.
(For the record, Employee Stock OPTION Plans require participants to put up their own money to exercise the option, and generally only result in income when the shares acquired are sold at a profit. An Employee Stock OWNERSHIP Plan may require participant contributions, but most do not. The whole idea of the ESOP is to empower workers without savings or the capacity to take cuts in pay to purchase shares in the companies that employ them on credit and repay the acquisition loan out of future dividends, thereafter receiving dividend income to supplement or, in some cases, replace wage income.
(As for savings, binary economics applies the "banking principle" to ESOP financing. That is, workers do not put up any of their own money. Instead, the bank or other financing source accepts the note or contract. The bank issues a promissory note that is signed by the representative of the ESOP Trust and — usually — guaranteed by the company. The promissory note is used to back a line of credit or loan, and the bank creates a demand deposit in the amount of the loan. This is used to purchase the company on behalf of the ESOP Trust. As the loan is repaid, the "new money" that was created by the acceptance of the contract and issuance of the promissory note is cancelled. While this same thing can be done by a bank lending out its capitalization or deposits, that is not the special function of a commercial bank, which serves to "monetize" the present value of existing and future marketable goods and services.)
What we in the Just Third Way look forward to is when people react to binary economics and its applications by asking us what all the fuss is about over something so obvious. There's still quite a ways to go before we reach that point, but there are definitely increasing signs that more people are becoming aware that "the usual" doesn't work and isn't going to work. The search for something more rational and more consistent with the natural law will gradually draw them away from the flawed systems of the past to the more socially and economically just system of the future.
#30#
Wednesday, February 29, 2012
Power to the People, III: Countering the Culture of Death
This is our 1,000th posting on the blog, no doubt a cause for great celebration throughout the world. (If not, it should be, as the Just Third Way — the paradigm, not the blog — is pretty much the only hope for returning the world to a more sane course.) In any event, it's probably appropriate that it falls on February 29th, which comes around about as often as a 1,000th posting. It's also appropriate that today's posting finishes off our short series on "Power to the People" and (more importantly), points in the direction of a solution.
While we appreciate the urge of people in the Pro-Life movement to turn the tables on the Culture of Death, we do have to point out that it really isn't the best way to go. Pro-Life adherents clearly don't realize that it is increasing State power itself, and the effective enslavement of people by wages and welfare, that is the root cause of the spread of the Culture of Death, not merely the "wrong" (i.e., what we disagree with) use of that power.
Attempting to use the power of the State to reverse the trend of modern society is not only ineffective — that is, socially unjust — it actually reinforces and strengthens the Culture of Death. People become increasingly susceptible to "Welfare Blackmail," i.e., accepting abortion, same-sex "marriage," inflation, war, a gigantic national debt, and so on, in order to secure increasingly uncertain benefits coerced, guaranteed, or provided directly by the State. Give the State an inch without retaining effective power in the people through capital ownership and control over the purse strings, and the State will not only take a mile, it will take everything.
There is, frankly, only one way to reverse the trend toward increasing State control of every aspect of life. That is to recognize, as Daniel Webster declared in the Massachusetts Constitutional Convention of 1820, that "Power naturally and necessarily follows property." The only way to reverse the total takeover of society by the State and defeat the Culture of Death is to secure to each child, woman and man the means of acquiring and possessing private property in capital.
The only program that has the potential to do that at this late date is Capital Homesteading, for only Capital Homesteading eliminates the slavery of past savings from the financing of new capital formation, thereby taking power away from the State that has usurped it, and returning "power to the people," from whence the power came in the first place, and where it belongs in accordance with the dignity of the human person under God and the realization that the State was made for man, not man for the State.
This is, in part, the argument we made in the book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010). The foreword is by Father Edward Krause, C.S.C., Ph.D., chaplain of the Society of Catholic Social Scientists, professor of social ethics at Gannon University and editor in chief of Social Justice Review, the official journal of the Central Bureau of the Catholic Central Union of America in St. Louis, Missouri.
Unfortunately, people remain trapped by the slavery of past savings, and are, evidently, terrified of rocking the boat or of risking losing the benefits that the State presumably guarantees. Some people, upset with them if they step out of line, might even call them names!
People who toe the "party line" on this — e.g., as one misguided enthusiast gushed, "The State is the sold intercessor available to the poor" (Rupert J. Ederer, "Solidaristic Economics," Fidelity magazine, July, 1994, 9-15) — forget that the State, which produces nothing, cannot continue to redistribute what others produce. Neither can the State continue to punish the productive for the benefit of the non-productive, and make it difficult to impossible for ordinary people to become productive through the direct ownership of capital as their labor declines in value relative to advancing technology and cheaper labor in other countries.
Nor can the State continue to try and control every aspect of every person's life in a fruitless effort to care for every conceivable individual good, letting the common good continue degenerate in consequence. Something has to give, as the situation in Greece demonstrates. The price of increasingly ineffectual State control is high, as is shown by every aborted infant, and it is a price that never should have been paid, however initially attractive high wages and guaranteed State benefits appear on the surface. With Capital Homesteading, the payments can be stopped. Without Capital Homesteading, the situation will only get worse.
#30#
While we appreciate the urge of people in the Pro-Life movement to turn the tables on the Culture of Death, we do have to point out that it really isn't the best way to go. Pro-Life adherents clearly don't realize that it is increasing State power itself, and the effective enslavement of people by wages and welfare, that is the root cause of the spread of the Culture of Death, not merely the "wrong" (i.e., what we disagree with) use of that power.
Attempting to use the power of the State to reverse the trend of modern society is not only ineffective — that is, socially unjust — it actually reinforces and strengthens the Culture of Death. People become increasingly susceptible to "Welfare Blackmail," i.e., accepting abortion, same-sex "marriage," inflation, war, a gigantic national debt, and so on, in order to secure increasingly uncertain benefits coerced, guaranteed, or provided directly by the State. Give the State an inch without retaining effective power in the people through capital ownership and control over the purse strings, and the State will not only take a mile, it will take everything.
There is, frankly, only one way to reverse the trend toward increasing State control of every aspect of life. That is to recognize, as Daniel Webster declared in the Massachusetts Constitutional Convention of 1820, that "Power naturally and necessarily follows property." The only way to reverse the total takeover of society by the State and defeat the Culture of Death is to secure to each child, woman and man the means of acquiring and possessing private property in capital.
The only program that has the potential to do that at this late date is Capital Homesteading, for only Capital Homesteading eliminates the slavery of past savings from the financing of new capital formation, thereby taking power away from the State that has usurped it, and returning "power to the people," from whence the power came in the first place, and where it belongs in accordance with the dignity of the human person under God and the realization that the State was made for man, not man for the State.
This is, in part, the argument we made in the book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010). The foreword is by Father Edward Krause, C.S.C., Ph.D., chaplain of the Society of Catholic Social Scientists, professor of social ethics at Gannon University and editor in chief of Social Justice Review, the official journal of the Central Bureau of the Catholic Central Union of America in St. Louis, Missouri.
Unfortunately, people remain trapped by the slavery of past savings, and are, evidently, terrified of rocking the boat or of risking losing the benefits that the State presumably guarantees. Some people, upset with them if they step out of line, might even call them names!
People who toe the "party line" on this — e.g., as one misguided enthusiast gushed, "The State is the sold intercessor available to the poor" (Rupert J. Ederer, "Solidaristic Economics," Fidelity magazine, July, 1994, 9-15) — forget that the State, which produces nothing, cannot continue to redistribute what others produce. Neither can the State continue to punish the productive for the benefit of the non-productive, and make it difficult to impossible for ordinary people to become productive through the direct ownership of capital as their labor declines in value relative to advancing technology and cheaper labor in other countries.
Nor can the State continue to try and control every aspect of every person's life in a fruitless effort to care for every conceivable individual good, letting the common good continue degenerate in consequence. Something has to give, as the situation in Greece demonstrates. The price of increasingly ineffectual State control is high, as is shown by every aborted infant, and it is a price that never should have been paid, however initially attractive high wages and guaranteed State benefits appear on the surface. With Capital Homesteading, the payments can be stopped. Without Capital Homesteading, the situation will only get worse.
#30#
Tuesday, February 28, 2012
Power to the People, II: The Loss of Virtue
The 1951 film Duck and Cover (starring Bert the Turtle) was intended to present possible survival techniques in the event of a nuclear attack . . . unless, of course, one happened to be at "ground zero." The idea was that, upon seeing the flash of a nuclear explosion, you would immediately seek shelter from the radiation and the shock wave. If adequate shelter could not be found, rolling yourself into a ball would provide some protection and minimize the burn area.
Unfortunately, these days the light of truth seems to be as greatly feared as the flash of a nuclear bomb. When confronted with the verifiable facts and supported arguments of the Just Third Way, the standard reaction is to emulate Bert the Turtle and seek shelter immediately from the shock that you might have made one or two mistakes in your reasoning, thereby undermining your conclusion(s) — especially the one that the only way to finance new capital formation is to cut consumption and save.
Are there flaws in our arguments? Can our proofs be, well, disproved? It's always possible, and we try to be open to reasoned arguments and evidence that points in the other direction. We don't get too much of that, however — or any at all, for that matter. What we get is bare assertions that we're wrong, wrong, wrong, and that's all there is to it . . . usually from people who haven't read or (in many cases) understood what we've written.
As we said, nowhere is this more evident than when we come up against people who adhere to the belief that only existing accumulations of savings can be used to finance new capital formation as if it were religious revelation. As we saw in yesterday's posting, however, the slavery of past savings leads inevitably to the growth of the totalitarian State, which cannot tolerate any competing power, whether it be voluntary associations of citizens, or even the family or organized religion.
Within the past savings framework, the State necessarily takes over more and more of the business of living, intruding into and controlling every aspect of life. Interestingly, as the State takes over more and more of the business of living for everyone and imposes a condition of dependency — slavery to State-guaranteed wages and welfare (Belloc's "Servile State") — on as many people as possible, there is an observable decrease in the acquisition and development of virtue among people generally, even as the State works overtime to try and force people to be virtuous — on its terms, of course.
This makes sense. Confusing cause and effect, Aristotle defined a natural slave as a human-appearing being that completely lacks the capacity to acquire and develop virtue — "human-ness." This is, of course, backwards. It's not that someone is a slave because he or she cannot acquire and develop virtue. Rather, slavery renders someone generally incapable of acquiring and developing virtue. By taking away the exercise of our natural rights, the State renders us unfit for life as free citizens — and then claims that we are slaves by nature, and must be looked after by the State. Aristotle was wrong, but at least he wasn't a hypocrite.
The exercise of our natural rights, especially life, liberty and property, is the chief means by which we as political animals acquire and develop virtue. Being allegedly incapable of acquiring and developing virtue, a slave (as we might expect) has no rights — he doesn't need them. He has a master to take care of him, and provide for his every need. All those whips and chains and shackles (and the occasional salutary crucifixion for saying the wrong thing or looking funny), well, that's just the price you have to pay for the safe and secure life of a slave, and that week of vacation during the Saturnalia.
The problem is that nominally free people who own no capital — capital ownership, the chief support of life and liberty, being ordinarily the means by which people acquire and develop virtue — are, in effect, "masterless slaves." That being the case, they need someone to take care of them. The modern absolutist State is ready and willing (it's ability, especially in light of the current economic crisis, is questionable) to assume this role, and to guarantee everyone's individual good — at a price: ownership of everything, as the totalitarian philosopher Thomas Hobbes made clear in Leviathan.
As socialism is the abolition of private property — private property being the right to control and enjoy the fruits — socialism is the only answer. It is assumed in light of the myth of past savings that the fact that the popes have condemned socialism is either a mistake, or socialism is not really socialism, i.e., is something other than the abolition of private property. As Keynes declared, the State has the right to "re-edit the dictionary," so why not, if it can get you absolute power?
Capital ownership becomes something that would be nice to have if it could be done, say, by a willing redistribution of wealth by private owners, or a program by the State, but the important thing is to guarantee adequate wages, welfare, healthcare, and any other individual good or alleged good that some bureaucrat has decided is desirable, such as abortion on demand, or same sex "marriage."
All of this is in sharp contrast to the Just Third Way, which is based on the three principles of economic justice,
Participation,
Distribution, and
Harmony,
and embodied in the "Four Pillars of an Economically Just Society" . . . all of which, while fully consistent with the natural law, are impossible under the past savings assumption (thereby arguing that the past savings assumption is contrary to the natural law):
1. A limited economic role for the State (past savings requires increasing State control to keep a dying system on life support),
2. Free and open markets as the best means for determining just wages, just prices and just profits (past savings requires State control of wages, prices and profits to guarantee results),
3. Restoration of the rights of private property, especially in corporate equity and other forms of business organization (past savings requires that small and minority owners be deprived of the fruits of ownership — control and income — to ensure the accumulation of sufficient savings), and
4. Widespread direct ownership of capital (small and minority owners would use their income for consumption, not reinvestment as required by the past savings assumption).
The ineffectiveness of the Pro-Life movement is a graphic example of what happens when we are trapped by the slavery of past savings. Seeing no other way to end abortion on demand, they attempt to capture the State and use it to advance the Pro-Life cause, thereby turning the tables on the Culture of Death. This effort to use the weapons of the Culture of Death against them is (as we might expect) self-defeating.
The end, contrary to what Machiavelli claimed, does not justify the means. We cannot licitly use the coercive power of the State to force our views on others, however correct we believe those views to be. Our claim that we are using the power of the State for good instead of evil is the very claim made by the totalitarians . . . the other totalitarians, that is. By demanding "all or nothing" we become the very thing we are opposing.
There is also the problem that, even in a totalitarian system, an "all or nothing" demand generally results in the latter.
#30#
Unfortunately, these days the light of truth seems to be as greatly feared as the flash of a nuclear bomb. When confronted with the verifiable facts and supported arguments of the Just Third Way, the standard reaction is to emulate Bert the Turtle and seek shelter immediately from the shock that you might have made one or two mistakes in your reasoning, thereby undermining your conclusion(s) — especially the one that the only way to finance new capital formation is to cut consumption and save.
Are there flaws in our arguments? Can our proofs be, well, disproved? It's always possible, and we try to be open to reasoned arguments and evidence that points in the other direction. We don't get too much of that, however — or any at all, for that matter. What we get is bare assertions that we're wrong, wrong, wrong, and that's all there is to it . . . usually from people who haven't read or (in many cases) understood what we've written.
As we said, nowhere is this more evident than when we come up against people who adhere to the belief that only existing accumulations of savings can be used to finance new capital formation as if it were religious revelation. As we saw in yesterday's posting, however, the slavery of past savings leads inevitably to the growth of the totalitarian State, which cannot tolerate any competing power, whether it be voluntary associations of citizens, or even the family or organized religion.
Within the past savings framework, the State necessarily takes over more and more of the business of living, intruding into and controlling every aspect of life. Interestingly, as the State takes over more and more of the business of living for everyone and imposes a condition of dependency — slavery to State-guaranteed wages and welfare (Belloc's "Servile State") — on as many people as possible, there is an observable decrease in the acquisition and development of virtue among people generally, even as the State works overtime to try and force people to be virtuous — on its terms, of course.
This makes sense. Confusing cause and effect, Aristotle defined a natural slave as a human-appearing being that completely lacks the capacity to acquire and develop virtue — "human-ness." This is, of course, backwards. It's not that someone is a slave because he or she cannot acquire and develop virtue. Rather, slavery renders someone generally incapable of acquiring and developing virtue. By taking away the exercise of our natural rights, the State renders us unfit for life as free citizens — and then claims that we are slaves by nature, and must be looked after by the State. Aristotle was wrong, but at least he wasn't a hypocrite.
The exercise of our natural rights, especially life, liberty and property, is the chief means by which we as political animals acquire and develop virtue. Being allegedly incapable of acquiring and developing virtue, a slave (as we might expect) has no rights — he doesn't need them. He has a master to take care of him, and provide for his every need. All those whips and chains and shackles (and the occasional salutary crucifixion for saying the wrong thing or looking funny), well, that's just the price you have to pay for the safe and secure life of a slave, and that week of vacation during the Saturnalia.
The problem is that nominally free people who own no capital — capital ownership, the chief support of life and liberty, being ordinarily the means by which people acquire and develop virtue — are, in effect, "masterless slaves." That being the case, they need someone to take care of them. The modern absolutist State is ready and willing (it's ability, especially in light of the current economic crisis, is questionable) to assume this role, and to guarantee everyone's individual good — at a price: ownership of everything, as the totalitarian philosopher Thomas Hobbes made clear in Leviathan.
As socialism is the abolition of private property — private property being the right to control and enjoy the fruits — socialism is the only answer. It is assumed in light of the myth of past savings that the fact that the popes have condemned socialism is either a mistake, or socialism is not really socialism, i.e., is something other than the abolition of private property. As Keynes declared, the State has the right to "re-edit the dictionary," so why not, if it can get you absolute power?
Capital ownership becomes something that would be nice to have if it could be done, say, by a willing redistribution of wealth by private owners, or a program by the State, but the important thing is to guarantee adequate wages, welfare, healthcare, and any other individual good or alleged good that some bureaucrat has decided is desirable, such as abortion on demand, or same sex "marriage."
All of this is in sharp contrast to the Just Third Way, which is based on the three principles of economic justice,
Participation,
Distribution, and
Harmony,
and embodied in the "Four Pillars of an Economically Just Society" . . . all of which, while fully consistent with the natural law, are impossible under the past savings assumption (thereby arguing that the past savings assumption is contrary to the natural law):
1. A limited economic role for the State (past savings requires increasing State control to keep a dying system on life support),
2. Free and open markets as the best means for determining just wages, just prices and just profits (past savings requires State control of wages, prices and profits to guarantee results),
3. Restoration of the rights of private property, especially in corporate equity and other forms of business organization (past savings requires that small and minority owners be deprived of the fruits of ownership — control and income — to ensure the accumulation of sufficient savings), and
4. Widespread direct ownership of capital (small and minority owners would use their income for consumption, not reinvestment as required by the past savings assumption).
The ineffectiveness of the Pro-Life movement is a graphic example of what happens when we are trapped by the slavery of past savings. Seeing no other way to end abortion on demand, they attempt to capture the State and use it to advance the Pro-Life cause, thereby turning the tables on the Culture of Death. This effort to use the weapons of the Culture of Death against them is (as we might expect) self-defeating.
The end, contrary to what Machiavelli claimed, does not justify the means. We cannot licitly use the coercive power of the State to force our views on others, however correct we believe those views to be. Our claim that we are using the power of the State for good instead of evil is the very claim made by the totalitarians . . . the other totalitarians, that is. By demanding "all or nothing" we become the very thing we are opposing.
There is also the problem that, even in a totalitarian system, an "all or nothing" demand generally results in the latter.
#30#
Monday, February 27, 2012
Power to the People, I: The Myth of Past Savings
In his article, "Under the Control of the State" (The Catholic World Report blog, 02/17/12) Father James Schall, S.J., of Georgetown University raises an issue that we have addressed many times on this blog. Most recently this has been in the "Raw Judicial Power" series and the 02/22/12 posting on the false equality concept that pervades today's politics.
While Father Schall's article is insightful, he unfortunately avoids addressing the underlying cause of the immense growth of government power he deplores. That is the fixed belief that the only way to finance new capital formation is to cut consumption and accumulate money savings.
As regular readers are well aware, the myth of past savings (we use "myth" here not in the sense of guiding world view, but of "false story") necessarily leads to concentrated ownership of capital as technology advances and becomes increasingly expensive. Only the very rich — and the richer, the better — have the capacity to restrict their consumption to that degree. The rich actually find it impossible, as Louis Kelso pointed out, to consume the vast amount of income generated by the capital they own. Being rational, the money is reinvested in yet more capital, exacerbating the problem.
The past savings myth that only an elite can afford to finance new capital formation leads to the creation of a number of other damaging myths. One of the most harmful is the belief that advancing technology is evil. As Chesterton scholar Father Ian Boyd has analyzed the situation, "man is building machines he cannot control." "Control" and "ownership" being the same in all codes of law, what Father Boyd is really saying is that "man is building machines he cannot own." As a corollary, if technology were not advancing, it would remain simple, and ordinary people could afford to cut consumption and save to acquire it — and 99% of the people on earth would starve to death in a matter of weeks.
These are logical conclusions in light of the slavery of past savings into which humanity has sold itself. It comes as no surprise that Father Boyd, who does not appear to understand Kelso's financing techniques that would emancipate humanity from the slavery of past savings, rejects the Just Third Way on the vague grounds that "It's not our way."
The myth that technology is evil leads to another myth, that any technology beyond a nebulous "human scale" must be eliminated or put under the control of the State, not left in the hands of untrustworthy private interests.
The problem is that State control to the degree necessary to regulate the economy to achieve politically desirable ends is contrary to nature. The right to be an owner is a natural right, as Leo XIII made painfully clear in Rerum Novarum. Thus, once it has begun the process of trying to guarantee results to any degree, the State is "forced" to exercise increasing control and intrude into every aspect of life in every sphere in an increasingly desperate yet nevertheless futile attempt to impose desired results.
The reasoning is sound, even though the premises are false:
1. Shackled by the myth of past savings, it is assumed that ordinary individuals cannot control — own — these vast machines and systems because they do not have the savings to purchase them, and lack the capacity to restrict consumption in order to accumulate the necessary cash.
2. Contradicting the fact that nothing created by God can be intrinsically evil, private owners of capital — capitalists — are assumed to be inherently greedy. As such, they cannot be trusted to exercise proper stewardship of their wealth for the good of all humanity, for which the wealth was created.
3. Since all production comes from labor (another myth), the rich must be thieves, because nobody's labor is worth that much, so the only way to accumulate so much is to have stolen it. Justice demands that the rich be punished for their gargantuan thefts, unless they voluntarily redistribute their ill-gotten gains.
4. Since the State is the guardian of the common good — always misunderstood as the aggregation of individual goods, not correctly understood as the vast network of institutions within which humanity as political animals acquires and develops virtue — the State must assume absolute power as Keynes declared, and either control or own outright first money and credit, then key industries, then all industries, and, ultimately, take over both domestic and religious society, abolishing or nullifying humanity's natural rights to life, liberty (freedom of association/contract), and property.
Not surprisingly, within this frame of reference a viable solution becomes impossible. If we try to make every citizen an owner of enough capital to generate an adequate and secure income sufficient to meet common domestic needs satisfactorily, the only source of that capital within a system in which all capital must be financed out of existing accumulations of savings are the wealthy who, by definition, own those savings.
If the rich prove obstinate — as people tend to do when being called thieves and someone demands all or a portion of their wealth — then the only recourse is to confiscate and redistribute, either the capital itself, or the income generated by the capital. Since property is the right to control what you own and derive the fruits — the income — therefrom, the only way to restore property within a system based on the past savings assumption is to destroy the meaning of property.
Is, however, the slavery of past savings the only option? Is there a way that people can retain their natural rights and exercise those rights at the same time? Or is the phrase "the rights of man" as empty as the totalitarian and absolutist State would have us believe?
#30#
While Father Schall's article is insightful, he unfortunately avoids addressing the underlying cause of the immense growth of government power he deplores. That is the fixed belief that the only way to finance new capital formation is to cut consumption and accumulate money savings.
As regular readers are well aware, the myth of past savings (we use "myth" here not in the sense of guiding world view, but of "false story") necessarily leads to concentrated ownership of capital as technology advances and becomes increasingly expensive. Only the very rich — and the richer, the better — have the capacity to restrict their consumption to that degree. The rich actually find it impossible, as Louis Kelso pointed out, to consume the vast amount of income generated by the capital they own. Being rational, the money is reinvested in yet more capital, exacerbating the problem.
The past savings myth that only an elite can afford to finance new capital formation leads to the creation of a number of other damaging myths. One of the most harmful is the belief that advancing technology is evil. As Chesterton scholar Father Ian Boyd has analyzed the situation, "man is building machines he cannot control." "Control" and "ownership" being the same in all codes of law, what Father Boyd is really saying is that "man is building machines he cannot own." As a corollary, if technology were not advancing, it would remain simple, and ordinary people could afford to cut consumption and save to acquire it — and 99% of the people on earth would starve to death in a matter of weeks.
These are logical conclusions in light of the slavery of past savings into which humanity has sold itself. It comes as no surprise that Father Boyd, who does not appear to understand Kelso's financing techniques that would emancipate humanity from the slavery of past savings, rejects the Just Third Way on the vague grounds that "It's not our way."
The myth that technology is evil leads to another myth, that any technology beyond a nebulous "human scale" must be eliminated or put under the control of the State, not left in the hands of untrustworthy private interests.
The problem is that State control to the degree necessary to regulate the economy to achieve politically desirable ends is contrary to nature. The right to be an owner is a natural right, as Leo XIII made painfully clear in Rerum Novarum. Thus, once it has begun the process of trying to guarantee results to any degree, the State is "forced" to exercise increasing control and intrude into every aspect of life in every sphere in an increasingly desperate yet nevertheless futile attempt to impose desired results.
The reasoning is sound, even though the premises are false:
1. Shackled by the myth of past savings, it is assumed that ordinary individuals cannot control — own — these vast machines and systems because they do not have the savings to purchase them, and lack the capacity to restrict consumption in order to accumulate the necessary cash.
2. Contradicting the fact that nothing created by God can be intrinsically evil, private owners of capital — capitalists — are assumed to be inherently greedy. As such, they cannot be trusted to exercise proper stewardship of their wealth for the good of all humanity, for which the wealth was created.
3. Since all production comes from labor (another myth), the rich must be thieves, because nobody's labor is worth that much, so the only way to accumulate so much is to have stolen it. Justice demands that the rich be punished for their gargantuan thefts, unless they voluntarily redistribute their ill-gotten gains.
4. Since the State is the guardian of the common good — always misunderstood as the aggregation of individual goods, not correctly understood as the vast network of institutions within which humanity as political animals acquires and develops virtue — the State must assume absolute power as Keynes declared, and either control or own outright first money and credit, then key industries, then all industries, and, ultimately, take over both domestic and religious society, abolishing or nullifying humanity's natural rights to life, liberty (freedom of association/contract), and property.
Not surprisingly, within this frame of reference a viable solution becomes impossible. If we try to make every citizen an owner of enough capital to generate an adequate and secure income sufficient to meet common domestic needs satisfactorily, the only source of that capital within a system in which all capital must be financed out of existing accumulations of savings are the wealthy who, by definition, own those savings.
If the rich prove obstinate — as people tend to do when being called thieves and someone demands all or a portion of their wealth — then the only recourse is to confiscate and redistribute, either the capital itself, or the income generated by the capital. Since property is the right to control what you own and derive the fruits — the income — therefrom, the only way to restore property within a system based on the past savings assumption is to destroy the meaning of property.
Is, however, the slavery of past savings the only option? Is there a way that people can retain their natural rights and exercise those rights at the same time? Or is the phrase "the rights of man" as empty as the totalitarian and absolutist State would have us believe?
#30#
Friday, February 24, 2012
News from the Network, Vol. 5, No. 8
This has been another busy week at CESJ, albeit one a trifle easier to write about than last week (which was also pretty full). Our meetings are productive . . . but they aren't the most fun or even informative to read about, even in short news items. Be that as it may, we have been making some significant progress:
• According to the NCEO Bulletin, the percentage of worker ownership in the private sector has been in a slight decline since reaching a plateau some years ago. A number of reasons are cited for this development, among them the general economic decline, loss of tax credits, and so on. Although this was not addressed, it may also be that, with growing government control of the economy — the federal deficit is projected to be 72.5% of GDP this year, as opposed to 40% four years ago, and every dollar of government debt means a dollar spent into the economy for government purposes, and a future dollar in taxes that must be collected to redeem the debt — workers are less willing to take responsibility for their own welfare, and companies are less willing to risk it. It might also be that, with the perception that government is willing to bail out failed companies considered "too big to fail," there is less incentive to implement worker ownership with its greater concern for the viability of the company.
• Supporters of the Just Third Way are urged to start preparing for the annual "Rally at the Fed" in April in Washington, DC. With the heightened focus on the economy and the failure (so far) of any of the incumbents and candidates to come up with a viable solution that doesn't involve a permanent outstanding government debt, a proposal that has the potential to eliminate deficits and the debt in a generation or so and achieve full employment without inflation should make for a lively topic of discussion. You should plan on attending just to see the (metaphorical) fireworks.
• It's well known that some of the people in CESJ and the Just Third Way are involved in the American Revolutionary Party. While there is no organizational affiliation, and CESJ does not endorse or support any candidate or party, the ARP has included much of what CESJ proposes for Capital Homesteading in its platform. Recently there were questions raised about the "don't subsidize, don't criminalize" position on abortion, with some people holding that removal of any government support is tantamount to criminalizing abortion, and others taking the position that not advocating criminalization is tantamount to supporting it. We believe that, while the arguments on both sides have some merit, there is no cause for concern. As explained in the book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010) — available from both Amazon and Barnes and Noble in trade paperback, and in Amazon's Kindle format — we think that the "don't criminalize, don't subsidize" position is consistent with the natural law and thus the social teachings of Judaism, Christianity and Islam (among others), and satisfies the demand for continued availability of abortion until such time as what A. V. Dicey called "public opinion" can come up with something that will completely satisfy both the Pro-Choice and the Pro-Life position — as we must admit is possible if we treat people holding a position that differs from our own as fellow human beings rather than demons. It's a complex argument, so don't expect to get it in the weekly news notes. You'll have to read the book.
• The CESJ core group had a very interesting and informative discussion with the president of the Foundation for Enterprise Development on Thursday. She is very concerned with how to foster entrepreneurship through worker ownership while maintaining a viable and vital corporate culture. That is something that Justice-Based Management is concerned with as well. There might be some common ground for future collaboration.
• Guy S. in Iowa put us in touch with a leader in Santorum's campaign. This represented the fruit of a lot of effort on Guy's part, and may help significantly in setting up another meeting between Rick Santorum and Norman Kurland. Not that we're limiting ourselves to a single candidate or party. If someone will listen and is willing to hear about something that has the potential to turn this country around (to say nothing of restoring the personal and individual sovereignty that supports the human dignity that is the hallmark of what America means), we are more than happy to give of our time.
• As of this morning, we have had visitors from 57 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, the Philippines and India. People in Venezuela, Hong Kong, Australia, the United States and India spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Raw Judicial Power, Part XI: The Slaughterhouse Cases," "Aristotle on Private Property," "E. J. Dionne v. Citizens United," and "Raw Judicial Power, Part XIII: The Slaughterhouse Cases, Effects."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
• According to the NCEO Bulletin, the percentage of worker ownership in the private sector has been in a slight decline since reaching a plateau some years ago. A number of reasons are cited for this development, among them the general economic decline, loss of tax credits, and so on. Although this was not addressed, it may also be that, with growing government control of the economy — the federal deficit is projected to be 72.5% of GDP this year, as opposed to 40% four years ago, and every dollar of government debt means a dollar spent into the economy for government purposes, and a future dollar in taxes that must be collected to redeem the debt — workers are less willing to take responsibility for their own welfare, and companies are less willing to risk it. It might also be that, with the perception that government is willing to bail out failed companies considered "too big to fail," there is less incentive to implement worker ownership with its greater concern for the viability of the company.
• Supporters of the Just Third Way are urged to start preparing for the annual "Rally at the Fed" in April in Washington, DC. With the heightened focus on the economy and the failure (so far) of any of the incumbents and candidates to come up with a viable solution that doesn't involve a permanent outstanding government debt, a proposal that has the potential to eliminate deficits and the debt in a generation or so and achieve full employment without inflation should make for a lively topic of discussion. You should plan on attending just to see the (metaphorical) fireworks.
• It's well known that some of the people in CESJ and the Just Third Way are involved in the American Revolutionary Party. While there is no organizational affiliation, and CESJ does not endorse or support any candidate or party, the ARP has included much of what CESJ proposes for Capital Homesteading in its platform. Recently there were questions raised about the "don't subsidize, don't criminalize" position on abortion, with some people holding that removal of any government support is tantamount to criminalizing abortion, and others taking the position that not advocating criminalization is tantamount to supporting it. We believe that, while the arguments on both sides have some merit, there is no cause for concern. As explained in the book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010) — available from both Amazon and Barnes and Noble in trade paperback, and in Amazon's Kindle format — we think that the "don't criminalize, don't subsidize" position is consistent with the natural law and thus the social teachings of Judaism, Christianity and Islam (among others), and satisfies the demand for continued availability of abortion until such time as what A. V. Dicey called "public opinion" can come up with something that will completely satisfy both the Pro-Choice and the Pro-Life position — as we must admit is possible if we treat people holding a position that differs from our own as fellow human beings rather than demons. It's a complex argument, so don't expect to get it in the weekly news notes. You'll have to read the book.
• The CESJ core group had a very interesting and informative discussion with the president of the Foundation for Enterprise Development on Thursday. She is very concerned with how to foster entrepreneurship through worker ownership while maintaining a viable and vital corporate culture. That is something that Justice-Based Management is concerned with as well. There might be some common ground for future collaboration.
• Guy S. in Iowa put us in touch with a leader in Santorum's campaign. This represented the fruit of a lot of effort on Guy's part, and may help significantly in setting up another meeting between Rick Santorum and Norman Kurland. Not that we're limiting ourselves to a single candidate or party. If someone will listen and is willing to hear about something that has the potential to turn this country around (to say nothing of restoring the personal and individual sovereignty that supports the human dignity that is the hallmark of what America means), we are more than happy to give of our time.
• As of this morning, we have had visitors from 57 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, the Philippines and India. People in Venezuela, Hong Kong, Australia, the United States and India spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "Raw Judicial Power, Part XI: The Slaughterhouse Cases," "Aristotle on Private Property," "E. J. Dionne v. Citizens United," and "Raw Judicial Power, Part XIII: The Slaughterhouse Cases, Effects."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Thursday, February 23, 2012
Some Just Third Way Terms
As we've mentioned a couple of times in the weekly News from the Network, we're working on an updating of Capital Homesteading for Every Citizen, which we published in 2004 before one or two things happened. Part of the task involves revising and adding to the "Just Third Way Glossary" that proved to be such an important part of the book. For today's posting, we thought we'd present some of the revised and new entries to the Glossary.
Acceptance. In financial terms, an "acceptance" is a negotiable instrument, such as a bill of exchange, mortgage, or bill of credit, that is accepted in settlement of a debt. Anything accepted in settlement of a debt is considered "money." When the offer and acceptance of an instrument is between non-bank private parties, the instrument is known as a "merchants" or "trade" acceptance, and is to all intents and purposes, privately issued money. When the offer and acceptance of an instrument is between a non-bank private party and a bank of issue, or between two banks of issue, the instrument is known as a "bankers acceptance."
Anticipation Note. See "Bill of Credit."
Bank of Deposit. A bank of deposit is defined as a financial institution that takes deposits and makes loans. It is limited in the amount of loans it can make by the amount of its capitalization and deposits. A bank of deposit cannot create money. The most common types of bank of deposit are credit unions, savings and loans, and investment banks.
Bank of Issue. A bank of issue (also known as a "bank of circulation") is defined as a financial institution that takes deposits, makes loans, and issues promissory notes. A bank of issue can create money by "accepting" and "discounting" or "rediscounting" private sector "bills of exchange" or government "bills of credit," for which the bank issues a promissory note. The promissory note is used to back demand deposits or (rarely nowadays) smaller promissory notes known as "banknotes." When a bank of issue accepts private sector bills of exchange, the money supply is asset-backed and represents the present value of future marketable goods and services conveyed by discounting or rediscounting bills of exchange. When a bank of issue accepts government bills of credit, the money supply is debt-backed and represents the present value of anticipated future tax collections by the State conveyed by purchasing the State's "anticipation notes," as bills of credit are also known. The most common types of bank of issue are commercial and mercantile banks. A central bank is a special type of bank of issue, possibly best understood as "a bank of issue for banks of issue," intended primarily to provide rediscounting accommodation for member commercial banks.
Bank, Central. A "bank of issue for banks of issue." A central bank functions as a bank of issue for a region's commercial banks, usually being the only financial institution permitted to "monetize" assets for circulation as legal tender currency. A central bank differs from other banks of issue in that it accepts negotiable instruments that have already been made or issued by other banks and financial institutions, businesses, or individuals. A central bank accepts such assets by rediscounting the instruments issued by member banks, or purchasing the instruments issued by non-member banks, businesses or individuals on the open market. A central bank pays for the instruments by printing currency, striking coin, or creating demand deposits denominated in units of the currency. This money is cancelled or retired when the original issuer of the instrument redeems the instrument. A central bank regulates the creation of money and credit, and sets interest rate policy, provides member banks with reserves on an emergency basis, and oversees clearinghouse operations. If operated properly, a central bank thereby establishes a uniform and stable asset-backed currency that has the capacity to expand and contract directly with the needs of private sector industry, commerce, and agriculture.
Bank, Commercial. Also known as a "Mercantile Bank." A financial institution that takes deposits, makes loans and issues promissory notes — a "bank of issue" — to facilitate commercial transactions. A commercial bank creates money for carrying on a society's economic transactions by accepting bills of exchange for discounting. If permitted by law, a commercial bank may also function as a savings bank ("bank of deposit") offering personal financial services to individuals.
Bank, Investment. A financial institution that takes deposits and makes loans to facilitate the buying and selling of securities, e.g., shares of company stock and corporate debt instruments. The special function of an investment bank is to intermediate between "savers" — usually brokers handling individual, corporate, or institutional accounts (past savers), and banks of issue that have created money on behalf of their customers by accepting bills of exchange (future savers) — and the issuers or holders in due course of primary or secondary issues of securities. An investment bank thus serves as a middleman between the primary or original issuer of a security, and the ultimate secondary purchaser.
Bank. There are two basic types of institutions known as "banks." These are (1) Banks of Deposit, and (2) Banks of Issue. A bank of deposit is defined as a financial institution that takes deposits and makes loans. A bank of issue (also known as a "bank of circulation") is defined as a financial institution that takes deposits, makes loans, and issues promissory notes. A Central Bank is a special type of bank of issue intended to function as a "bank of issue for banks of issue."
Bill of Credit. A "bill of credit" is a special "constitutional" type of bill of exchange issued ("emitted") by a government. Also known as an "anticipation note" (from "anticipated tax revenues"), a bill of credit is not backed by assets, per se, but by the "faith and credit" of the government, that is, the ability of the government to redeem the bill of credit out of future tax revenues.
Bill of Exchange. A bill of exchange is a private sector negotiable instrument backed by the general creditworthiness of the "drawer" or issuer. The present value of the bill is thus based on the present value of the anticipated future marketable goods and services the drawer expects to produce and sell, thereby generating the means to redeem the bill upon maturity. Assuming an honestly run and properly regulated banking system with enforcement of adequate internal controls (especially separation of commercial from investment banking — see "Glass-Steagall"), the amount of bills of exchange drawn is necessarily limited by the present value of potential financially feasible capital projects in the economy. Bills of exchange should be carefully distinguished from mortgages and bills of credit.
Chicago Plan. A proposal from the 1930s to implement a 100% reserve requirement (i.e., full asset backing behind all bank loans) as a means of addressing the financial chaos resulting from speculative loans that resulted in the stock market crash of 1929. The weakness of the Chicago Plan was that it did not take into account Say's Law of Markets as applied in the real bills doctrine. Consequently, the special function of commercial banks and the Federal Reserve in creating money by accepting bills of exchange for discounting and rediscounting was ignored. The proposal was to transform all commercial banks and the Federal Reserve into purely depository institutions — banks of deposit — and back the whole of the money supply with government debt. By prohibiting money creation by discounting and rediscounting private sector bills of exchange, the Chicago Plan would have put the U.S. economy under the control of the federal government, a problem that Henry Simons, who developed the Plan, was not able to reconcile with his anti-monopoly stand.
Discount Rate. The percentage by which a central bank reduces the amount of cash printed or demand deposit created to purchase qualified securities from member banks and financial institutions. While often erroneously construed as an interest rate, under binary economic policy, this rate takes the form of a service fee, estimated at 0.5%, to cover all central banking and regulatory costs of monetizing Capital Homesteading loans made by commercial banks and other qualified financial institutions for broadening the ownership of new capital. The discount rate is a recognition of the time value of money, and should reflect the present value of the face amount of the instrument due on maturity and the risk associated with the possibility that the drawer of the bill will not redeem the bill on maturity. In binary monetary policy, the risk premium is separated from the time value of money and used to purchase capital credit insurance to compensate the holder in due course of the instrument in the event of default.
Discounting. A bill of exchange is always offered and accepted in commerce at the present value of the future redemption amount denominated on the face of the bill. Because the present value of a future sum is almost always less than the face value of the instrument, the initial process of offering and accepting a bill of exchange is called "discounting." For example, on a $10,000 loan discounted at 0.5%, the lender would give the borrower $9,950 ($10,000-$50) in cash. The "discount rate" is not an interest charge, but a recognition of the time value of money as well as the risk that the bill will not be redeemed on maturity. All subsequent offers and acceptance of the same bill are called "rediscounting." The initial discounting of a bill creates new money, while rediscounting transfers existing money. A bill of exchange that has a present value in excess of the face amount is said to pass at a "premium," but the offer and acceptance is still called discounting and rediscounting. While central banks may discount bills directly from the public, the primary function of a central bank is to accept rediscounts from member banks, supplemented with open market operations in the securities issued by non-member banks, private businesses and individuals. In all cases, a central bank purchases qualified loans by printing currency or creating demand deposits.
Glass-Steagall Act. There are two acts known as "Glass-Steagall," after the sponsors, Senator Carter Glass of Virginia, and Senator Henry Steagall of Alabama. The first is the Banking Act of 1932, which permitted the Federal Reserve to accept government bills of credit intermediated by special brokers instead of member commercial banks, thereby streamlining the process of monetizing government deficits. The second is the Banking Act of 1933, Pub.L. 73-66, 48 Stat. 162 (June 16, 1933) that, among other reforms, established the FDIC and separated commercial and investment banking as a systemic or internal control to prevent speculation and conflicts of interest. The partial repeal of the 1933 Glass-Steagall in the early 1980s (The Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn-St. Germain Depository Institutions Act of 1982) led to the savings and loan crisis of the late 1980s and early 1990s and permitted mergers that led to the formation of financial institutions considered "too big to fail." The full repeal of Glass-Steagall in 1999 in response to the unification of the financial services industry in Europe due to the introduction of the Euro on January 1, 1999 abolished systemic internal controls in the U.S. financial services industry and led directly to the financial crisis of 2007 and the subsequent economic downturn.
Mortgage. A mortgage is a private sector negotiable instrument backed by the present value of existing marketable goods and services owned by the "drawer" or issuer. The present value of the mortgage is thus based on the current value of the goods and services on which the mortgage is drawn. In the event a drawer of a mortgage fails to redeem the mortgage on maturity, the holder in due course of the mortgage becomes the owner of the goods and services. The home or real estate mortgage is most familiar, but not the most common type of mortgage, which is widely used in commerce, usually in the form of a secured debenture.
Real Bills Doctrine. An application of "Say's Law of Markets." The real bills doctrine is that, everything else being equal, as long as the present value of the bills of exchange discounted in the economy in aggregate equals the present value of future marketable goods and services there will be neither inflation nor deflation, but a uniform, stable, and elastic money supply that exactly meets the needs of the economy.
Reserves. Cash or cash equivalents (currently usually government securities) that a commercial bank has on hand to cover transactions demand for cash on deposit, and to satisfy the demand for convertibility of the bank's obligations into legal tender. It is important to note that reserves do not back the bank's obligations. The bank's obligations (promissory notes and demand deposits) are backed by the present value of the bank's capitalization, deposits, and accepted bills of exchange.
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Acceptance. In financial terms, an "acceptance" is a negotiable instrument, such as a bill of exchange, mortgage, or bill of credit, that is accepted in settlement of a debt. Anything accepted in settlement of a debt is considered "money." When the offer and acceptance of an instrument is between non-bank private parties, the instrument is known as a "merchants" or "trade" acceptance, and is to all intents and purposes, privately issued money. When the offer and acceptance of an instrument is between a non-bank private party and a bank of issue, or between two banks of issue, the instrument is known as a "bankers acceptance."
Anticipation Note. See "Bill of Credit."
Bank of Deposit. A bank of deposit is defined as a financial institution that takes deposits and makes loans. It is limited in the amount of loans it can make by the amount of its capitalization and deposits. A bank of deposit cannot create money. The most common types of bank of deposit are credit unions, savings and loans, and investment banks.
Bank of Issue. A bank of issue (also known as a "bank of circulation") is defined as a financial institution that takes deposits, makes loans, and issues promissory notes. A bank of issue can create money by "accepting" and "discounting" or "rediscounting" private sector "bills of exchange" or government "bills of credit," for which the bank issues a promissory note. The promissory note is used to back demand deposits or (rarely nowadays) smaller promissory notes known as "banknotes." When a bank of issue accepts private sector bills of exchange, the money supply is asset-backed and represents the present value of future marketable goods and services conveyed by discounting or rediscounting bills of exchange. When a bank of issue accepts government bills of credit, the money supply is debt-backed and represents the present value of anticipated future tax collections by the State conveyed by purchasing the State's "anticipation notes," as bills of credit are also known. The most common types of bank of issue are commercial and mercantile banks. A central bank is a special type of bank of issue, possibly best understood as "a bank of issue for banks of issue," intended primarily to provide rediscounting accommodation for member commercial banks.
Bank, Central. A "bank of issue for banks of issue." A central bank functions as a bank of issue for a region's commercial banks, usually being the only financial institution permitted to "monetize" assets for circulation as legal tender currency. A central bank differs from other banks of issue in that it accepts negotiable instruments that have already been made or issued by other banks and financial institutions, businesses, or individuals. A central bank accepts such assets by rediscounting the instruments issued by member banks, or purchasing the instruments issued by non-member banks, businesses or individuals on the open market. A central bank pays for the instruments by printing currency, striking coin, or creating demand deposits denominated in units of the currency. This money is cancelled or retired when the original issuer of the instrument redeems the instrument. A central bank regulates the creation of money and credit, and sets interest rate policy, provides member banks with reserves on an emergency basis, and oversees clearinghouse operations. If operated properly, a central bank thereby establishes a uniform and stable asset-backed currency that has the capacity to expand and contract directly with the needs of private sector industry, commerce, and agriculture.
Bank, Commercial. Also known as a "Mercantile Bank." A financial institution that takes deposits, makes loans and issues promissory notes — a "bank of issue" — to facilitate commercial transactions. A commercial bank creates money for carrying on a society's economic transactions by accepting bills of exchange for discounting. If permitted by law, a commercial bank may also function as a savings bank ("bank of deposit") offering personal financial services to individuals.
Bank, Investment. A financial institution that takes deposits and makes loans to facilitate the buying and selling of securities, e.g., shares of company stock and corporate debt instruments. The special function of an investment bank is to intermediate between "savers" — usually brokers handling individual, corporate, or institutional accounts (past savers), and banks of issue that have created money on behalf of their customers by accepting bills of exchange (future savers) — and the issuers or holders in due course of primary or secondary issues of securities. An investment bank thus serves as a middleman between the primary or original issuer of a security, and the ultimate secondary purchaser.
Bank. There are two basic types of institutions known as "banks." These are (1) Banks of Deposit, and (2) Banks of Issue. A bank of deposit is defined as a financial institution that takes deposits and makes loans. A bank of issue (also known as a "bank of circulation") is defined as a financial institution that takes deposits, makes loans, and issues promissory notes. A Central Bank is a special type of bank of issue intended to function as a "bank of issue for banks of issue."
Bill of Credit. A "bill of credit" is a special "constitutional" type of bill of exchange issued ("emitted") by a government. Also known as an "anticipation note" (from "anticipated tax revenues"), a bill of credit is not backed by assets, per se, but by the "faith and credit" of the government, that is, the ability of the government to redeem the bill of credit out of future tax revenues.
Bill of Exchange. A bill of exchange is a private sector negotiable instrument backed by the general creditworthiness of the "drawer" or issuer. The present value of the bill is thus based on the present value of the anticipated future marketable goods and services the drawer expects to produce and sell, thereby generating the means to redeem the bill upon maturity. Assuming an honestly run and properly regulated banking system with enforcement of adequate internal controls (especially separation of commercial from investment banking — see "Glass-Steagall"), the amount of bills of exchange drawn is necessarily limited by the present value of potential financially feasible capital projects in the economy. Bills of exchange should be carefully distinguished from mortgages and bills of credit.
Chicago Plan. A proposal from the 1930s to implement a 100% reserve requirement (i.e., full asset backing behind all bank loans) as a means of addressing the financial chaos resulting from speculative loans that resulted in the stock market crash of 1929. The weakness of the Chicago Plan was that it did not take into account Say's Law of Markets as applied in the real bills doctrine. Consequently, the special function of commercial banks and the Federal Reserve in creating money by accepting bills of exchange for discounting and rediscounting was ignored. The proposal was to transform all commercial banks and the Federal Reserve into purely depository institutions — banks of deposit — and back the whole of the money supply with government debt. By prohibiting money creation by discounting and rediscounting private sector bills of exchange, the Chicago Plan would have put the U.S. economy under the control of the federal government, a problem that Henry Simons, who developed the Plan, was not able to reconcile with his anti-monopoly stand.
Discount Rate. The percentage by which a central bank reduces the amount of cash printed or demand deposit created to purchase qualified securities from member banks and financial institutions. While often erroneously construed as an interest rate, under binary economic policy, this rate takes the form of a service fee, estimated at 0.5%, to cover all central banking and regulatory costs of monetizing Capital Homesteading loans made by commercial banks and other qualified financial institutions for broadening the ownership of new capital. The discount rate is a recognition of the time value of money, and should reflect the present value of the face amount of the instrument due on maturity and the risk associated with the possibility that the drawer of the bill will not redeem the bill on maturity. In binary monetary policy, the risk premium is separated from the time value of money and used to purchase capital credit insurance to compensate the holder in due course of the instrument in the event of default.
Discounting. A bill of exchange is always offered and accepted in commerce at the present value of the future redemption amount denominated on the face of the bill. Because the present value of a future sum is almost always less than the face value of the instrument, the initial process of offering and accepting a bill of exchange is called "discounting." For example, on a $10,000 loan discounted at 0.5%, the lender would give the borrower $9,950 ($10,000-$50) in cash. The "discount rate" is not an interest charge, but a recognition of the time value of money as well as the risk that the bill will not be redeemed on maturity. All subsequent offers and acceptance of the same bill are called "rediscounting." The initial discounting of a bill creates new money, while rediscounting transfers existing money. A bill of exchange that has a present value in excess of the face amount is said to pass at a "premium," but the offer and acceptance is still called discounting and rediscounting. While central banks may discount bills directly from the public, the primary function of a central bank is to accept rediscounts from member banks, supplemented with open market operations in the securities issued by non-member banks, private businesses and individuals. In all cases, a central bank purchases qualified loans by printing currency or creating demand deposits.
Glass-Steagall Act. There are two acts known as "Glass-Steagall," after the sponsors, Senator Carter Glass of Virginia, and Senator Henry Steagall of Alabama. The first is the Banking Act of 1932, which permitted the Federal Reserve to accept government bills of credit intermediated by special brokers instead of member commercial banks, thereby streamlining the process of monetizing government deficits. The second is the Banking Act of 1933, Pub.L. 73-66, 48 Stat. 162 (June 16, 1933) that, among other reforms, established the FDIC and separated commercial and investment banking as a systemic or internal control to prevent speculation and conflicts of interest. The partial repeal of the 1933 Glass-Steagall in the early 1980s (The Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn-St. Germain Depository Institutions Act of 1982) led to the savings and loan crisis of the late 1980s and early 1990s and permitted mergers that led to the formation of financial institutions considered "too big to fail." The full repeal of Glass-Steagall in 1999 in response to the unification of the financial services industry in Europe due to the introduction of the Euro on January 1, 1999 abolished systemic internal controls in the U.S. financial services industry and led directly to the financial crisis of 2007 and the subsequent economic downturn.
Mortgage. A mortgage is a private sector negotiable instrument backed by the present value of existing marketable goods and services owned by the "drawer" or issuer. The present value of the mortgage is thus based on the current value of the goods and services on which the mortgage is drawn. In the event a drawer of a mortgage fails to redeem the mortgage on maturity, the holder in due course of the mortgage becomes the owner of the goods and services. The home or real estate mortgage is most familiar, but not the most common type of mortgage, which is widely used in commerce, usually in the form of a secured debenture.
Real Bills Doctrine. An application of "Say's Law of Markets." The real bills doctrine is that, everything else being equal, as long as the present value of the bills of exchange discounted in the economy in aggregate equals the present value of future marketable goods and services there will be neither inflation nor deflation, but a uniform, stable, and elastic money supply that exactly meets the needs of the economy.
Reserves. Cash or cash equivalents (currently usually government securities) that a commercial bank has on hand to cover transactions demand for cash on deposit, and to satisfy the demand for convertibility of the bank's obligations into legal tender. It is important to note that reserves do not back the bank's obligations. The bank's obligations (promissory notes and demand deposits) are backed by the present value of the bank's capitalization, deposits, and accepted bills of exchange.
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Wednesday, February 22, 2012
The Crimes of Rick Santorum
In his column in today's Washington Post, Dana Milbank goes to some trouble to convince his readers that Rick Santorum has been calling President Obama a Nazi. If Milbank's claim is correct, then Santorum is guilty of behavior that can only be described as despicable. The world may have known worse tyrants — Joseph Stalin comes to mind as a possibility — but none causes the visceral reaction of associating someone with Adolf Hitler, head of the National Socialist ("Nazi") Party. Calling President Obama a Nazi is, given his position as Head of State, tantamount to calling him another Hitler.
Despite Milbank's best efforts, the evidence is, at best, thin. He bases it on Santorum's oft-used comparisons between various Nazi programs, and those of today's federal government. Milbank does not cite one single instance where Santorum has called anyone except an actual member of the Nazi Party a Nazi, but assumes that drawing comparisons as a rhetorical device is the same as spewing out hate speech.
No, Milbank presents no evidence to prove that Santorum has ever called President Obama a Nazi or compared him to Hitler. There is plenty of innuendo, however. Take, for example, Milbank's statement, "Santorum is such a stranger to democratic give-and-take that he thinks it's okay to label everybody else as Nazis."
Notice the cleverness of Milbank's statement. He does not state as a fact that Santorum has ever at any time called anyone a Nazi. Even given the rather tepid protection public figures have against libel that might get Milbank into trouble.
No, what Milbank says is that — in his opinion (unless Milbank claims the power to read minds) — Santorum thinks it's okay to call everybody else Nazis. In other words, based on his less-than-generous and rather slanted interpretation of various statements and actions by Santorum, Milbank is actually saying what he thinks Santorum thinks.
Thus, without actually saying so, Milbank leaves the reader with the impression that Santorum habitually calls anyone with whom he disagrees a Nazi, when, in strict truth, Milbank has not presented any evidence to prove that Santorum has ever done any such thing. Nor would a reasonable person without an ax to grind infer any such thing from the quotes Milbank gives or the incidents he cites.
Googling "Santorum is calling Obama a Nazi" gave approximately 21.8 million matches. A quick check revealed that possibly a third of them were claims that Santorum was calling President Obama a Nazi or Hitler, but citing no specific instance. About two-thirds seemed to be denials by Santorum that he has ever done any such thing. Nowhere was there an actual quote by Santorum given.
All Milbank did was give the standard unanswerable — and completely dishonest — argument, "I know what you're thinking." If you deny that is what you are thinking, you're a liar. If you don't deny it, you're guilty. As anyone who has ever tried to respond to a furious boy- or girlfriend who pulls out that argument, there's no way you're going to win. The only thing anyone can do is retreat and get out of the line of fire until things cool down . . . such as after the election, which would probably suit Milbank just fine.
What is baffling about the allegation that Santorum calls President Obama and, apparently, everyone else on earth Nazis is (aside from the lack of evidence), however, the utter disingenuousness of the accusation. For eight years people called George Bush a Hitler, even coining a neologism, "Bushitler," that not only explicitly called Bush a reincarnation of the man many people regard as the greatest monster in history, but also hinted at large masses of bovine residue. Googling "Bushitler" gave 13,500 matches, while "Bush is Hitler" gave 28.5 million. Putting quotes around the words so that the exact phrase pops up gave 19,700 matches. "Bush is a Nazi" gave 12,600 matches.
The computer word count for this blog is 666. You know what that means.
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Despite Milbank's best efforts, the evidence is, at best, thin. He bases it on Santorum's oft-used comparisons between various Nazi programs, and those of today's federal government. Milbank does not cite one single instance where Santorum has called anyone except an actual member of the Nazi Party a Nazi, but assumes that drawing comparisons as a rhetorical device is the same as spewing out hate speech.
No, Milbank presents no evidence to prove that Santorum has ever called President Obama a Nazi or compared him to Hitler. There is plenty of innuendo, however. Take, for example, Milbank's statement, "Santorum is such a stranger to democratic give-and-take that he thinks it's okay to label everybody else as Nazis."
Notice the cleverness of Milbank's statement. He does not state as a fact that Santorum has ever at any time called anyone a Nazi. Even given the rather tepid protection public figures have against libel that might get Milbank into trouble.
No, what Milbank says is that — in his opinion (unless Milbank claims the power to read minds) — Santorum thinks it's okay to call everybody else Nazis. In other words, based on his less-than-generous and rather slanted interpretation of various statements and actions by Santorum, Milbank is actually saying what he thinks Santorum thinks.
Thus, without actually saying so, Milbank leaves the reader with the impression that Santorum habitually calls anyone with whom he disagrees a Nazi, when, in strict truth, Milbank has not presented any evidence to prove that Santorum has ever done any such thing. Nor would a reasonable person without an ax to grind infer any such thing from the quotes Milbank gives or the incidents he cites.
Googling "Santorum is calling Obama a Nazi" gave approximately 21.8 million matches. A quick check revealed that possibly a third of them were claims that Santorum was calling President Obama a Nazi or Hitler, but citing no specific instance. About two-thirds seemed to be denials by Santorum that he has ever done any such thing. Nowhere was there an actual quote by Santorum given.
All Milbank did was give the standard unanswerable — and completely dishonest — argument, "I know what you're thinking." If you deny that is what you are thinking, you're a liar. If you don't deny it, you're guilty. As anyone who has ever tried to respond to a furious boy- or girlfriend who pulls out that argument, there's no way you're going to win. The only thing anyone can do is retreat and get out of the line of fire until things cool down . . . such as after the election, which would probably suit Milbank just fine.
What is baffling about the allegation that Santorum calls President Obama and, apparently, everyone else on earth Nazis is (aside from the lack of evidence), however, the utter disingenuousness of the accusation. For eight years people called George Bush a Hitler, even coining a neologism, "Bushitler," that not only explicitly called Bush a reincarnation of the man many people regard as the greatest monster in history, but also hinted at large masses of bovine residue. Googling "Bushitler" gave 13,500 matches, while "Bush is Hitler" gave 28.5 million. Putting quotes around the words so that the exact phrase pops up gave 19,700 matches. "Bush is a Nazi" gave 12,600 matches.
The computer word count for this blog is 666. You know what that means.
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