As we noted yesterday, traditional schools of economic thought and concepts of individual morality are either incorrect (as with Lord Keynes), or incomplete (as with Aristotle). In the combination of the economic justice principles of Kelso and Adler and the social doctrine of the Catholic Church, however, we have an approach that is both economically and financially sound and (in the truest sense) politically feasible. Kelso and Adler detail the principles of the "economics of reality," while Pope Pius XI and his breakthrough in the concepts of social charity and social justice give us a way of understanding human nature in light of what little we can perceive of ultimate reality.
If we left the Just Third Way in the realm of theory and principle, however, we would never get anywhere. Fortunately, we have proposals that have been developed and refined over the years, and the component parts tested and retested. The proposals for "Capital Homesteading" and the "Abraham Federation," are based on principles of proven effectiveness and morality, and give an efficient and effective way out of the dilemma. Visiting the CESJ website and reviewing the materials found there will demonstrate that the situation is not as hopeless as many appear to believe. It is unnecessary to redefine the natural law, the basic building block of reality, in order to achieve an end to world poverty and offenses against the dignity of the human person under God.
Briefly (for we've described both proposals a number of times on this blog already), Capital Homesteading is a national economic policy based on the binary growth model of Louis Kelso and Mortimer Adler. It is designed to lift barriers in the present financial and economic system and universalize access to the means of acquiring and possessing capital assets.
A Capital Homestead Act would allow every man, woman, and child to accumulate a target level of assets sufficient to generate an adequate and secure income for that person without requiring the use of existing pools of savings or reductions in current levels of consumption. A "preferential option for the poor" would be in the form of allowing everyone to accumulate his or her assets using a tax-sheltered Capital Homestead Account. Tax shelters are usually restricted to the rich, but would now be open to the non-rich, thereby opening up equality of opportunity.
The Abraham Federation is similar to Capital Homesteading, but designed for implementation in countries and economies where there are competing claims for the same assets, usually land and natural resources, and where traditions of private ownership may have been attenuated or diluted over the years. The Abraham Federation would, in essence, create a new form of the nation-state, offering an economic and legal system based on (1) private property in the means of production, (2) free and competitive markets for determining just prices, just wages and just profits, and (3) a well-defined and limited economic role of the State. The constitution and laws of the new nation would also be structured to (4) guarantee each citizen with an equal opportunity to become an owner of productive assets.
Each of these four basic pillars of a genuinely "free and just market system" is essential and interdependent for creating an environment for sustainable and balanced growth. They build moral values into the economic environment, without which free markets become unjust and unfree markets. Take one pillar away and the system will become unbalanced, vulnerable to corruption, monopolies and special privileges, and wasteful of human potential. By integrating these four policy objectives, the tax system and the money-creating powers of the state would be restructured so that every citizen has equal access to "social tools" (like a simple and just tax system, a stable asset-backed currency and an ownership-spreading productive credit system) to acquire and accumulate enough productive assets to meet his or her living needs upon retirement.
In a national ownership-sharing program, citizens would become direct co-owners of land. In addition, they would accumulate and receive dividends and property incomes from direct equity ownership in new technologies, agribusinesses, industries, and rentable space and infrastructure built upon the land. Moreover, by the systematic spreading and sharing of ownership power, one of the basic conditions for any future Holocausts and breeding grounds for terrorists alienation of large numbers of workers would gradually disappear.
THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
Wednesday, April 15, 2009
Tuesday, April 14, 2009
Easter Economics, Part II: The Problem
We discovered yesterday that the confusion over "access" (opportunity) and "use" (exercise) with respect to private property allows sincere and well-motivated people to support socialism (albeit under many names) as the "only" alternative to the injustices prevalent in society.
Confusing access and use, however, is why Pope Pius XI and other popes condemned socialism. It is not because socialism abolishes private property (although that is the hallmark of what it means to be socialist), but because socialism is based on "a theory of human society peculiar to itself and irreconcilable with true Christianity." (Quadragesimo Anno, § 120) That is, socialism, by redefining natural rights, destroys the very thing that makes the human person "social," and undermines the foundation of the social order. Socialism shifts the focus from the human person to that of a vague "collective." Socialism thereby directly offends against the dignity of the human person under God.
Thus, the statement, "no one can be at the same time a good Catholic and a true socialist" (Ibid.) is a simple statement of fact. This is because Catholicism relies on accepting a philosophy of natural law based not on Will, but on Intellect. Socialism, on the other hand, takes away the very thing that defines us as human: participation in God's Knowledge reflected in the human person through adherence to the principles of the natural law discerned not by faith, but by reason.
Briefly to reiterate what we have explained many times before, the "universal destination" ("access") of the goods of the world refers to the right each and every human being has to acquire and possess both consumer and capital goods — equality of opportunity. This is the natural right to private property, as St. Thomas and the popes explain carefully and at great length, and which is repeated in Article 17(1) and 17(2) of the Universal Declaration of Human Rights: "(1) Everyone has the right to own property alone as well as in association with others. (2) No one shall be arbitrarily deprived of his property." Thus, no one, absent just cause and due process, can be prevented from becoming an owner of either consumer or capital goods without thereby offending against his or her human dignity at the most profound level.
"Access," however, is distinct from "use." "Use" refers not to the natural right of private property, embedded in human nature by God Himself ("access," which we just described, consistent with natural law principles, as the right to property, or the right to acquire and possess consumer and capital goods), but to the exercise of property, or what one may do with what one owns, how much can be acquired, and even (based on the needs of the individual, groups, and society as a whole) what kinds of goods may be owned . . . as long as the important caveat is observed, reiterated by Pope Pius XII, that the exercise of the rights of ownership may never be defined in any way that negates the natural right to be an owner.
That is why, for instance, even if we decide somebody else owns "too much," we cannot simply and arbitrarily take it away. That would be to take away that individual's right to be an owner, thereby negating his or her natural right "to have a share of earthly goods sufficient for oneself and one's family," which the constant teaching of the Catholic Church assures us is inherent in everyone, not just those whose behavior, race, religion, degree of wealth, club membership, or anything else we approve.
In practical terms, of course, isolating one group (usually "the rich," but more and more these days "the Jews," "the Neo-cons," or any other group against which those doing the complaining have an animus) and confiscating their goods for redistribution to achieve what we imagine is a more equitable arrangement makes possession less secure for everyone. Confiscating and redistributing from any individual or group, whatever the justification or pretext, virtually dissolves all security in property, for the next group that comes into power will, naturally, confiscate from the recipients of the previous confiscation for redistribution among those whom the new people consider more deserving, and so on. Undermining security in property undermines the stability of all of society, for the maintenance of which St. Thomas teaches that we must be willing to tolerate even hideously unjust conditions and laws if the attempt to correct them would destroy the social order, the social order being considered necessary to humanity's social and individual development.
That is why, regardless of the injustice of the system, conditions, or even particular laws, unless the system, condition, or law forces us as individuals directly to perform or not perform some act that violates our conscience, we cannot simply force or coerce others into doing what we believe to be right. We must be prepared to accept the existence of concentrated wealth, poverty, slavery, even abortion, and not take the law into our own hands, as long as we are not forced or be willing personally to participate directly in concentrating wealth, keeping someone poor, enslaving others or owning slaves, or procuring or assisting in the procurement of abortions.
This is why the clear teaching of the Catholic Church is that we cannot simply confiscate and redistribute wealth, kill slave owners, or bomb abortion facilities. Whether we personally believe something to be morally right or wrong, if, in order to correct a situation, we violate the rights of others — which constitutes their human dignity — we become worse than those whom we regard as immoral, the presumption being that, having put ourselves in place as judges over our fellow man, we should know better.
Within the traditional framework of individual morality and Keynesian economics, there is no answer to this dilemma. We are forced either to go along with an unjust or intolerable situation, or become worse than those whom we regard, rightly or wrongly, as criminals. Fortunately, however, the Just Third Way has a solution to this otherwise insolvable conundrum. That will be the subject of the next posting.
Confusing access and use, however, is why Pope Pius XI and other popes condemned socialism. It is not because socialism abolishes private property (although that is the hallmark of what it means to be socialist), but because socialism is based on "a theory of human society peculiar to itself and irreconcilable with true Christianity." (Quadragesimo Anno, § 120) That is, socialism, by redefining natural rights, destroys the very thing that makes the human person "social," and undermines the foundation of the social order. Socialism shifts the focus from the human person to that of a vague "collective." Socialism thereby directly offends against the dignity of the human person under God.
Thus, the statement, "no one can be at the same time a good Catholic and a true socialist" (Ibid.) is a simple statement of fact. This is because Catholicism relies on accepting a philosophy of natural law based not on Will, but on Intellect. Socialism, on the other hand, takes away the very thing that defines us as human: participation in God's Knowledge reflected in the human person through adherence to the principles of the natural law discerned not by faith, but by reason.
Briefly to reiterate what we have explained many times before, the "universal destination" ("access") of the goods of the world refers to the right each and every human being has to acquire and possess both consumer and capital goods — equality of opportunity. This is the natural right to private property, as St. Thomas and the popes explain carefully and at great length, and which is repeated in Article 17(1) and 17(2) of the Universal Declaration of Human Rights: "(1) Everyone has the right to own property alone as well as in association with others. (2) No one shall be arbitrarily deprived of his property." Thus, no one, absent just cause and due process, can be prevented from becoming an owner of either consumer or capital goods without thereby offending against his or her human dignity at the most profound level.
"Access," however, is distinct from "use." "Use" refers not to the natural right of private property, embedded in human nature by God Himself ("access," which we just described, consistent with natural law principles, as the right to property, or the right to acquire and possess consumer and capital goods), but to the exercise of property, or what one may do with what one owns, how much can be acquired, and even (based on the needs of the individual, groups, and society as a whole) what kinds of goods may be owned . . . as long as the important caveat is observed, reiterated by Pope Pius XII, that the exercise of the rights of ownership may never be defined in any way that negates the natural right to be an owner.
That is why, for instance, even if we decide somebody else owns "too much," we cannot simply and arbitrarily take it away. That would be to take away that individual's right to be an owner, thereby negating his or her natural right "to have a share of earthly goods sufficient for oneself and one's family," which the constant teaching of the Catholic Church assures us is inherent in everyone, not just those whose behavior, race, religion, degree of wealth, club membership, or anything else we approve.
In practical terms, of course, isolating one group (usually "the rich," but more and more these days "the Jews," "the Neo-cons," or any other group against which those doing the complaining have an animus) and confiscating their goods for redistribution to achieve what we imagine is a more equitable arrangement makes possession less secure for everyone. Confiscating and redistributing from any individual or group, whatever the justification or pretext, virtually dissolves all security in property, for the next group that comes into power will, naturally, confiscate from the recipients of the previous confiscation for redistribution among those whom the new people consider more deserving, and so on. Undermining security in property undermines the stability of all of society, for the maintenance of which St. Thomas teaches that we must be willing to tolerate even hideously unjust conditions and laws if the attempt to correct them would destroy the social order, the social order being considered necessary to humanity's social and individual development.
That is why, regardless of the injustice of the system, conditions, or even particular laws, unless the system, condition, or law forces us as individuals directly to perform or not perform some act that violates our conscience, we cannot simply force or coerce others into doing what we believe to be right. We must be prepared to accept the existence of concentrated wealth, poverty, slavery, even abortion, and not take the law into our own hands, as long as we are not forced or be willing personally to participate directly in concentrating wealth, keeping someone poor, enslaving others or owning slaves, or procuring or assisting in the procurement of abortions.
This is why the clear teaching of the Catholic Church is that we cannot simply confiscate and redistribute wealth, kill slave owners, or bomb abortion facilities. Whether we personally believe something to be morally right or wrong, if, in order to correct a situation, we violate the rights of others — which constitutes their human dignity — we become worse than those whom we regard as immoral, the presumption being that, having put ourselves in place as judges over our fellow man, we should know better.
Within the traditional framework of individual morality and Keynesian economics, there is no answer to this dilemma. We are forced either to go along with an unjust or intolerable situation, or become worse than those whom we regard, rightly or wrongly, as criminals. Fortunately, however, the Just Third Way has a solution to this otherwise insolvable conundrum. That will be the subject of the next posting.
Monday, April 13, 2009
Easter Economics, Part I: Will or Intellect (Again)
Early today we received an e-mail containing a lengthy article on "Easter Economics" by Charles Clark, composed in memory of the Easter Rising in Dublin in 1916. We found we could agree with a great deal that was in the article, at least all that related to statements of fact or quoted various declarations from the Catholic Church. We had problems, however, with the other things Mr. Clark said.
The problem comes in when Mr. Clark imposes a faith-based analysis and an a priori conclusion based on personal opinion, on Catholic social teachings promulgated under a mandate to apply the principles of human reason as taught by St. Thomas Aquinas. This mandate is contained, among other sources, in the encyclicals Æterni Patris (1879), Pascendi Dominici Gregis (1907), Studiorum Ducem (1923), and Veritatis Splendor (1993).
By redefining basic concepts such as the natural rights to life, liberty, and property, Mr. Clark and others not only change the "rules of the game" without notifying the other players, they change what it means for a thing to be a natural right. Basing their conclusions on faith instead of reason (or, as St. Thomas would put it, on a private interpretations of God's Will rather than the common consent of all mankind as to what we can perceive of God's Intellect), the entire second table of the Law of Moses (accepted by both Christians and Jews as an expression of the natural law) becomes subject to change and reinterpretation. This is just as Dr. Heinrich Rommen, the noted student of Father Heinrich Pesch, S.J., Ph.D. (sometimes described as the founder of "solidarist economics"), claimed inevitably happens in his book on the natural law:
Thus, by misunderstanding essential concepts of natural law, the stated basis for Catholic social teaching, Mr. Clark seems effectively to interpret the passage "the right to have a share of earthly goods sufficient for oneself and one's family belongs to everyone" as meaning the same as "a share of earthly goods sufficient for oneself and one's family belongs to everyone." The passages, however, are different. The latter removes the concept of right, and eliminates the critical distinction between "access" (opportunity) and "use" (exercise). Misunderstanding or reinterpreting what constitutes a "right" changes everything, so that what might seem to Mr. Clark as saying the same thing, actually says two very different things.
By thereby implicitly redefining the right of universal access to the goods of the earth found in the Bible, Catholic social teaching, and the UN Universal Declaration of Human Rights, Mr. Clark implies that a redistribution of the goods of the world based on need, instead of a redistribution of opportunity to acquire and possess the goods of the world, supplemented by charitable redistribution in the event of failure, is the objective of Catholic social teaching. This is not the case, as we will explain tomorrow.
The problem comes in when Mr. Clark imposes a faith-based analysis and an a priori conclusion based on personal opinion, on Catholic social teachings promulgated under a mandate to apply the principles of human reason as taught by St. Thomas Aquinas. This mandate is contained, among other sources, in the encyclicals Æterni Patris (1879), Pascendi Dominici Gregis (1907), Studiorum Ducem (1923), and Veritatis Splendor (1993).
By redefining basic concepts such as the natural rights to life, liberty, and property, Mr. Clark and others not only change the "rules of the game" without notifying the other players, they change what it means for a thing to be a natural right. Basing their conclusions on faith instead of reason (or, as St. Thomas would put it, on a private interpretations of God's Will rather than the common consent of all mankind as to what we can perceive of God's Intellect), the entire second table of the Law of Moses (accepted by both Christians and Jews as an expression of the natural law) becomes subject to change and reinterpretation. This is just as Dr. Heinrich Rommen, the noted student of Father Heinrich Pesch, S.J., Ph.D. (sometimes described as the founder of "solidarist economics"), claimed inevitably happens in his book on the natural law:
With Duns Scotus (d. cir. 1308), and with the principle of the primacy of the will over the intellect so much emphasized by him, there began inside moral philosophy a train of thought which in later centuries would recur in secularized form in the domain of legal philosophy. The principle that law is will would be referred in legal positivism, as well as in the theory of will in jurisprudence, to the earthly lawmaker (self-obligation).As Dr. Rommen describes Occam's contribution to this process,
For Duns Scotus morality depends on the will of God. A thing is good not because it corresponds to the nature of God or, analogically to the nature of man, but because God so wills. Hence the lex naturalis could be other than it is even materially or as to content, because it has no intrinsic connection with God's essence, which is self-conscious in His intellect. For Scotus, therefore, the laws of the second table of the Decalogue were no longer unalterable. . . . an evolution set in which, in the doctrine of William of Occam (d. cir. 1349) on the natural moral law, would lead to pure moral positivism, indeed to nihilism." (The Natural Law, pp. 51-52)
For Occam the natural moral law is positive law, divine will. An action is not good because of its suitableness to the essential nature of man, wherein God's archetypal idea of man is represented according to being and oughtness, but because God so wills. God's will could also have willed and decreed the precise opposite, which would then possess the same binding force as that which is now valid — which, indeed, has validity only as long as God's absolute will so determines. Law is will, pure will without any foundation in reality, without foundation in the essential nature of things. Thus, too, sin no longer contains any intrinsic element of immorality, or what is unjust, any inner element of injustice; it is an external offense against the will of God.If we then — contrary to explicit instructions given by the popes on how to understand Catholic social teaching — take the Will as the basis of natural law instead of the Intellect, nothing is certain. Everything becomes subject to change. The effect is to change the basis of the natural law from reason to faith. This goes from the traditional faith and reason joined together, each one illuminating the other, to forcing a choice that has vested the modern world with acute schizophrenia and posited an irreconcilable difference between science and religion: faith or reason. This schizophrenia is evident in Mr. Clark's analysis:
As a result, Occam, who sees only individual phenomena, not universals, the concepts of essences, can likewise admit no teleological orientation toward God is inherent in all creation and especially in man; or at least he cannot grant that it can be known. The unity of being, truth, and goodness does not exist for him. Moral goodness consists in mere external agreement with God's absolute will, which, subject only to His arbitrary decree, can always change. (Ibid., 52-53)
The Catholic social thought tradition also has a very different conception of equity. The basis of equity in Catholic social thought is the common gift of the earth from God. Thus the minimum equity criteria is that all have a share in this gift so that each will be able to meet their basic, minimum needs. "God destined the earth and all that it contains for the use of all people and peoples. Furthermore, the right to have a share of earthly goods sufficient for oneself and one's family belongs to everyone" (Vatican II, in Dorr, 1992, p. 154). This is not a claim for perfect equality, but that all be insured a decent standard of living. This claim is also put forward in the United Nations Universal Declaration of Human Rights.Mr. Clark states that, "The basis of equity in Catholic social thought is the common gift of the earth from God. Thus the minimum equity criteria is that all have a share in this gift so that each will be able to meet their basic, minimum needs." By inserting "common" into the discussion in a way never intended by the Catholic Church, Mr. Clark changes the thrust of millennia of natural law theory from, "each human being has, in common with all other human beings, the right to acquire and possess the goods of the earth" (the "analogy of being"), to "each human being must possess an equitable portion of the goods of the world that all own in common" (a restatement of the socialist dictum, "From each according to his abilities, to each according to his needs" — a principle valid for charity, not for justice).
Thus, by misunderstanding essential concepts of natural law, the stated basis for Catholic social teaching, Mr. Clark seems effectively to interpret the passage "the right to have a share of earthly goods sufficient for oneself and one's family belongs to everyone" as meaning the same as "a share of earthly goods sufficient for oneself and one's family belongs to everyone." The passages, however, are different. The latter removes the concept of right, and eliminates the critical distinction between "access" (opportunity) and "use" (exercise). Misunderstanding or reinterpreting what constitutes a "right" changes everything, so that what might seem to Mr. Clark as saying the same thing, actually says two very different things.
By thereby implicitly redefining the right of universal access to the goods of the earth found in the Bible, Catholic social teaching, and the UN Universal Declaration of Human Rights, Mr. Clark implies that a redistribution of the goods of the world based on need, instead of a redistribution of opportunity to acquire and possess the goods of the world, supplemented by charitable redistribution in the event of failure, is the objective of Catholic social teaching. This is not the case, as we will explain tomorrow.
Friday, April 10, 2009
News from the Network, Vol. 2, No. 15
Naturally, the news that banks have booked record profits in the first quarter has buoyed up the stock market. It will probably take a few weeks for people to begin realizing that, just as the stock market (the secondary market for debt and equity) doesn't really gauge the actual economic health of the country, banks and other financial institutions (dealing in pieces of paper that may or may not be backed by hard assets) don't tell us how well individuals and families are doing financially. They are the ones doing well, not ordinary people, especially those who are still without jobs or ownership of capital to generate a living income.
For that reason, it's singularly appropriate that there hasn't been very much going on except preparing for the rally outside the Federal Reserve.
For that reason, it's singularly appropriate that there hasn't been very much going on except preparing for the rally outside the Federal Reserve.
• Obviously, then, the main news this week is a reminder that the annual peaceful rally at the Federal Reserve building in Washington, DC, will take place on Wednesday, April 15, 2009, from noon to 1:30 PM, rain or shine, snow or sleet, sun, moon, or stars. We probably won't stick around too long in the event of a tornado, but we'll be there otherwise.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.
• Most of the activity this week has involved meetings and preparation for the rally at the Federal Reserve, which hasn't left much time for anything else. The important message, of course, is "Democratize the Fed." This doesn't just mean opening up democratic access to the means of acquiring and possessing a reasonable stake of income-generating assets (in other words, capital credit). Just as important, it also means spreading out ownership of the Federal Reserve itself among every citizen and legal resident of the United States and all territories served by America's central banking system. This is the only just — and effective — method of building accountability into the system and making it difficult-to-impossible for the federal government once again to hijack the Federal Reserve to avoid being accountable to the taxpayers for what the federal government spends.
• Specifically, the rally will help spread the word about how the Federal Reserve, without taxpayer money or adding to Federal debt, could help monetize the building of a "green growth" economy, which would eliminate U.S. dependency on imported oil and create a nation of capital owners by lifting artificial barriers to more equal future ownership opportunities.
• The Capital Homesteading effort will start in one of the most poverty-impacted areas in the U.S., the Metro East Citizens Land Cooperative Project in East St. Louis and its 14 neighboring Metro East (IL) Riverfront Communities. This project will introduce a comprehensive plan for the commercialization of advanced waste-to-energy technologies and the redevelopment of land and real estate. The project will result in 2,100 new jobs and the direct ownership of land and new energy systems by every local citizen as a shareholder in a for-profit Community Investment Corporation/Citizens Land Cooperative.
• There is also a plan to save the American automobile industry. The American Auto Worker Ownership Committee, consisting of active and retired members of the United Auto Workers, along with management, suppliers, dealers, and vested stakeholder, will offer their solution to the crisis in one of America's basic industries. The AAWOC's proposal calls for the reorganization and financing of the Big Three Auto Companies as 100% worker-owned entities through a leveraged Employee Stock Ownership Plan (ESOP) structure. It also proposes a new contract that would transform the United Auto Workers from its outmoded, conflict-based model of labor unionism to a more collaborative, productive and market-oriented "ownership union."
• As of this morning, we have had visitors from 43 different countries and 45 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, with Canada, Finland, the UK, and the Philippines. The most popular posting is still the one on Abraham Lincoln and the Homestead Act, although (probably because of the demonstration at the Federal Reserve in Washington, DC on Wednesday, April 15, 2009 — next week) the next three most popular are on the need to reform the central bank of the United States. The rest of the top ten deal with the increasingly obvious flaws in Keynesian economics.
Thursday, April 9, 2009
Depression, Recession, and Bubbles, Part IV: Creating Money for Investment
As we have seen in previous postings on this blog, the only sound method of money creation is to tie all new money creation to the present value of new capital formation, that is to the present value of future production. Unfortunately, virtually all new money creation by the central bank of the United States has been for government expenditures. Because government does not by its nature produce anything, this makes the new money creation purely inflationary.
The present "stimulus" package has the potential to make the present crisis even worse than it already is. By throwing good money after bad, that is, by creating money to make up for losses already incurred, the program is, in effect, inflating the currency two-for-one. While not of the magnitude — yet — of the worthless issues of unbacked currency that kicked off the German and Austro-Hungarian hyperinflation of the 1920s, creating money in this fashion has the potential to ignite a financial meltdown that makes the current one look mild.
It doesn't have to be this way. Immediately implementing a sound program of capital investment financed by the creation of new money in which all citizens can share democratically would start the long process of restoring people's faith in the economy and in the future, without relying on worthless hype and inane pep-talks. CESJ's "Capital Homesteading" proposal fits the bill exactly, with the advantage that the specific steps to be taken and programs that can be implemented are sufficiently well-described to enable any competent legislative assistant in Congress to put together a package enabling the proposal at the earliest possible date.
Of everything that has been proposed to date, Capital Homesteading is the soundest financially, and the most feasible politically. It is a national economic policy based on the binary growth model, designed to lift barriers in the present financial and economic system and universalize access to the means of acquiring and possessing capital assets. The Capital Homestead Act would allow every man, woman and child to accumulate in a tax-sheltered Capital Homestead Account, a target level of assets sufficient to generate an adequate and secure income for that person without requiring the use of existing pools of savings or reductions in current levels of consumption.
Surely such a result is better than having a fiscally and monetarily irresponsible government continue to create money to give to people who have already lost it.
The present "stimulus" package has the potential to make the present crisis even worse than it already is. By throwing good money after bad, that is, by creating money to make up for losses already incurred, the program is, in effect, inflating the currency two-for-one. While not of the magnitude — yet — of the worthless issues of unbacked currency that kicked off the German and Austro-Hungarian hyperinflation of the 1920s, creating money in this fashion has the potential to ignite a financial meltdown that makes the current one look mild.
It doesn't have to be this way. Immediately implementing a sound program of capital investment financed by the creation of new money in which all citizens can share democratically would start the long process of restoring people's faith in the economy and in the future, without relying on worthless hype and inane pep-talks. CESJ's "Capital Homesteading" proposal fits the bill exactly, with the advantage that the specific steps to be taken and programs that can be implemented are sufficiently well-described to enable any competent legislative assistant in Congress to put together a package enabling the proposal at the earliest possible date.
Of everything that has been proposed to date, Capital Homesteading is the soundest financially, and the most feasible politically. It is a national economic policy based on the binary growth model, designed to lift barriers in the present financial and economic system and universalize access to the means of acquiring and possessing capital assets. The Capital Homestead Act would allow every man, woman and child to accumulate in a tax-sheltered Capital Homestead Account, a target level of assets sufficient to generate an adequate and secure income for that person without requiring the use of existing pools of savings or reductions in current levels of consumption.
Surely such a result is better than having a fiscally and monetarily irresponsible government continue to create money to give to people who have already lost it.
Wednesday, April 8, 2009
Depression, Recession, and Bubbles, Part III: Creating Money for Consumption
Since the 1930s, money has been created to finance government expenditures, ostensibly to correct the flaws perceived in the private sector. This was added to the money creation for consumer purchases (mostly for homes) in the 1920s. It's almost an afterthought to include the notorious money creation to finance acquisition of speculative shares on Wall Street by people convinced that share values would always go up. Even Irving Fisher, considered by Nobel Laureate Milton Friedman to be "America's greatest economist," was caught up in the speculative frenzy and lost millions. Fisher was bailed out by Yale University to protect his reputation as someone who actually understood money, credit, banking, finance, and — of course — economics.
Clearly Yale's effort to protect Fisher's reputation was successful, if one of our most renowned recent defunct economists could consider him "America's greatest economist." It remains to be seen, however, whether the federal government's current efforts to save the reputation of the financial industry (possibly a misnomer in that the financial "industry" doesn't actually produce anything) will be equally successful . . . at least in the short run.
The problem is that Yale's bailout of Dr. Fisher, and the federal government's bailout of troubled financial companies are fundamentally different. Yale used endowment funds (unrestricted, we assume) to bail out Fisher. That is, Old Eli took some of his boola moolah, existing accumulations of savings donated by Bulldogs past and present, and spent it — which is what savings are for, anyway. This benefited Fisher (and Yale, which benefited by protecting the reputation of their Greatest Economist in America), and harmed no one, except (perhaps) future generations of Yale students who had to pay higher tuition and fees to make up for the shortfall. Far from being inflationary, a bailout using existing savings is deflationary, for it effectively cancels money in the economy that should have been used for genuine consumption instead of to make up for speculative and gambling losses.
The federal government, however, is creating money to bail out companies in danger of going into bankruptcy. The money is not coming out of existing accumulations of savings, but out of the government's power to collect taxes in the future — wealth that doesn't yet exist (and may never, at this rate). Because the money being created is being used to make good losses, the effect is the same as if the money was being created for consumption, speculation and gambling, or to finance a greater government deficit.
Under the "Real Bills" doctrine, when money is created to finance a project that is expected to pay for itself out of future revenues generated by the project itself, the infusion of new money will not be inflationary. The money is created by extending a loan to pay for the project, and secured ("backed") by a lien on the asset being created. As the loan is repaid, the money is cancelled. Service fees and risk premiums charged by the money creator reenter circulation as the money creator pays expenses and distributes profits, so that the amount of money created exactly matches the amount of money cancelled, everything else being equal.
Matters are slightly different if the project being financed does not pay for itself out of future revenues generated by the project itself. In that case, the money creator seizes whatever the borrower put up as collateral, and (hopefully) sells the collateral for enough money to meet its obligation to cancel the money that it created to finance the project. This will also result in no inflation.
The problem with the current government bailouts, and the reason the effort is purely inflationary, is that they are, essentially, creating collateral out of nothing so that the troubled companies can make good on investments that went bad. Unlike traditional collateral, however, the government bailout is not using existing accumulations of savings, as, for example, Yale University did to bail out Irving Fisher, thereby allowing the savings to be put to its "proper" use of being spent.
Instead, the government is, in effect, creating "savings" without first having to save . . . a Keynesian "solution" that operates by doing what Keynes in his General Theory declared was impossible. The money is "backed" by assets that have so little value that they have been called "toxic." Worse, money had previously been created to purchase the toxic assets in the first place. Essentially, then, by bailing out the troubled companies instead of letting them reorganize under Chapter 11 or go decently bankrupt under Chapter 7, the government is allowing two dollars to be created to finance one dollar of gambling losses: the original dollar created by the commercial banking system when, e.g., the toxic home mortgages were "securitized," and another dollar created by the government through the Federal Reserve to replace the first dollar that went down the drain.
The bottom line is that the inflation rate can only accelerate as the program gets into full swing, and money is created to replace gambling losses to the detriment of investment in capital projects that will create wealth instead of throwing it away. A proposal to create money for actual investment instead of to reward incompetence be examined tomorrow.
Clearly Yale's effort to protect Fisher's reputation was successful, if one of our most renowned recent defunct economists could consider him "America's greatest economist." It remains to be seen, however, whether the federal government's current efforts to save the reputation of the financial industry (possibly a misnomer in that the financial "industry" doesn't actually produce anything) will be equally successful . . . at least in the short run.
The problem is that Yale's bailout of Dr. Fisher, and the federal government's bailout of troubled financial companies are fundamentally different. Yale used endowment funds (unrestricted, we assume) to bail out Fisher. That is, Old Eli took some of his boola moolah, existing accumulations of savings donated by Bulldogs past and present, and spent it — which is what savings are for, anyway. This benefited Fisher (and Yale, which benefited by protecting the reputation of their Greatest Economist in America), and harmed no one, except (perhaps) future generations of Yale students who had to pay higher tuition and fees to make up for the shortfall. Far from being inflationary, a bailout using existing savings is deflationary, for it effectively cancels money in the economy that should have been used for genuine consumption instead of to make up for speculative and gambling losses.
The federal government, however, is creating money to bail out companies in danger of going into bankruptcy. The money is not coming out of existing accumulations of savings, but out of the government's power to collect taxes in the future — wealth that doesn't yet exist (and may never, at this rate). Because the money being created is being used to make good losses, the effect is the same as if the money was being created for consumption, speculation and gambling, or to finance a greater government deficit.
Under the "Real Bills" doctrine, when money is created to finance a project that is expected to pay for itself out of future revenues generated by the project itself, the infusion of new money will not be inflationary. The money is created by extending a loan to pay for the project, and secured ("backed") by a lien on the asset being created. As the loan is repaid, the money is cancelled. Service fees and risk premiums charged by the money creator reenter circulation as the money creator pays expenses and distributes profits, so that the amount of money created exactly matches the amount of money cancelled, everything else being equal.
Matters are slightly different if the project being financed does not pay for itself out of future revenues generated by the project itself. In that case, the money creator seizes whatever the borrower put up as collateral, and (hopefully) sells the collateral for enough money to meet its obligation to cancel the money that it created to finance the project. This will also result in no inflation.
The problem with the current government bailouts, and the reason the effort is purely inflationary, is that they are, essentially, creating collateral out of nothing so that the troubled companies can make good on investments that went bad. Unlike traditional collateral, however, the government bailout is not using existing accumulations of savings, as, for example, Yale University did to bail out Irving Fisher, thereby allowing the savings to be put to its "proper" use of being spent.
Instead, the government is, in effect, creating "savings" without first having to save . . . a Keynesian "solution" that operates by doing what Keynes in his General Theory declared was impossible. The money is "backed" by assets that have so little value that they have been called "toxic." Worse, money had previously been created to purchase the toxic assets in the first place. Essentially, then, by bailing out the troubled companies instead of letting them reorganize under Chapter 11 or go decently bankrupt under Chapter 7, the government is allowing two dollars to be created to finance one dollar of gambling losses: the original dollar created by the commercial banking system when, e.g., the toxic home mortgages were "securitized," and another dollar created by the government through the Federal Reserve to replace the first dollar that went down the drain.
The bottom line is that the inflation rate can only accelerate as the program gets into full swing, and money is created to replace gambling losses to the detriment of investment in capital projects that will create wealth instead of throwing it away. A proposal to create money for actual investment instead of to reward incompetence be examined tomorrow.
Tuesday, April 7, 2009
Depression, Recession, and Bubbles, Part II: When Assets Pay for Themselves
As we saw in yesterday's posting, the current financial crisis and that of 1929 share a common basis: money creation for the purchase of goods that do not generate their own repayment. According to Dr. Harold Moulton, first president of the Brookings Institution (one of America's oldest "think tanks"), all money creation for consumption purposes (including government expenditures), as opposed to investment in new capital formation is inflationary, unnecessary, and counterproductive.
Creating money for non-productive purposes leads to what can only be described as monetary and fiscal insanity. When money is created for things that do not pay for themselves, and yet are treated as capital assets (as in the securitization of home mortgages), prices are bid up as more money becomes available. Because the underlying assets can never generate enough income (or any income at all) to compensate the holders in due course of the securities as the prices go higher and higher, the bubble inevitably and necessarily collapses.
Think "P/E Ratio," or "Price to Earnings Ratio." The P/E Ratio is a tool used by financial analysts to try and determine whether a stock issue is a "good buy." It is a very old technique, dating back to at least the Middle Ages, where a prospective buyer would get an estimate of the value of the future crop to be produced from a plot of land, multiply it times a factor that rarely exceeded 15, and pay that price. The assumption was that the land would pay for itself in 15 years or less, depending on the factor used, and how productive the new owner could make the land. This was referred to as buying land for "15 years purchase," or however many years the buyer and seller agreed was fair — an implicit understanding of the idea of the "time value" of money.
Similarly, an analyst will look at the earnings per share of a company, and divide the price of the share by the annual earnings attributable to that share. Comparing the result with the company's ROI ("Return on Investment") presumably tells the analyst whether the stock is a good buy. If the P/E Ratio is, for example, 15, the pro rata income attributable to a single share will presumably be enough to pay for the share in 15 years, whether paid out as dividends (resulting in current income), or retained in the company (resulting in capital gains and realized income when the share is sold).
This theory, of course, assumes that the secondary market for shares ("Wall Street") accurately reflects share values as representative of the actual worth of a company. Since most investors are fully aware that is not the case — gambling and speculation have a great influence on share values on the secondary market, regardless of the earning power of the underlying company — the P/E Ratio, like most financial "tools," is considered only a handy, "rule of thumb" guide to the real value of the shares.
All of this, of course, assumes that savings have been accumulated before the purchase of the capital asset, and the new owner is simply recovering the cost of what he purchased, and thereafter deriving an income from whatever is produced. When existing accumulations of savings are involved, the damage is limited in scope, as we saw in the "Dot Bomb" collapse, which involved no one other than the people directly involved.
What happens when money is created for consumption or investments that do not pay for themselves is another matter entirely. That involves the whole of the financial system, which rapidly spreads to the whole economy as the consumer spending financed by the new money creation grinds to a halt in response to the sudden disappearance of the new money that was fueling the spending and the consequent inflation. That is what we will examine tomorrow.
Creating money for non-productive purposes leads to what can only be described as monetary and fiscal insanity. When money is created for things that do not pay for themselves, and yet are treated as capital assets (as in the securitization of home mortgages), prices are bid up as more money becomes available. Because the underlying assets can never generate enough income (or any income at all) to compensate the holders in due course of the securities as the prices go higher and higher, the bubble inevitably and necessarily collapses.
Think "P/E Ratio," or "Price to Earnings Ratio." The P/E Ratio is a tool used by financial analysts to try and determine whether a stock issue is a "good buy." It is a very old technique, dating back to at least the Middle Ages, where a prospective buyer would get an estimate of the value of the future crop to be produced from a plot of land, multiply it times a factor that rarely exceeded 15, and pay that price. The assumption was that the land would pay for itself in 15 years or less, depending on the factor used, and how productive the new owner could make the land. This was referred to as buying land for "15 years purchase," or however many years the buyer and seller agreed was fair — an implicit understanding of the idea of the "time value" of money.
Similarly, an analyst will look at the earnings per share of a company, and divide the price of the share by the annual earnings attributable to that share. Comparing the result with the company's ROI ("Return on Investment") presumably tells the analyst whether the stock is a good buy. If the P/E Ratio is, for example, 15, the pro rata income attributable to a single share will presumably be enough to pay for the share in 15 years, whether paid out as dividends (resulting in current income), or retained in the company (resulting in capital gains and realized income when the share is sold).
This theory, of course, assumes that the secondary market for shares ("Wall Street") accurately reflects share values as representative of the actual worth of a company. Since most investors are fully aware that is not the case — gambling and speculation have a great influence on share values on the secondary market, regardless of the earning power of the underlying company — the P/E Ratio, like most financial "tools," is considered only a handy, "rule of thumb" guide to the real value of the shares.
All of this, of course, assumes that savings have been accumulated before the purchase of the capital asset, and the new owner is simply recovering the cost of what he purchased, and thereafter deriving an income from whatever is produced. When existing accumulations of savings are involved, the damage is limited in scope, as we saw in the "Dot Bomb" collapse, which involved no one other than the people directly involved.
What happens when money is created for consumption or investments that do not pay for themselves is another matter entirely. That involves the whole of the financial system, which rapidly spreads to the whole economy as the consumer spending financed by the new money creation grinds to a halt in response to the sudden disappearance of the new money that was fueling the spending and the consequent inflation. That is what we will examine tomorrow.
Monday, April 6, 2009
Depression, Recession, and Bubbles, Part I: Money Creation Madness
Today's Wall Street Journal carries an interesting analysis of the parallels between the Great Depression and today's financial meltdown, and why the superficially similar "Dot Bomb" collapse did not have the same effect. To summarize the argument of Steven Gjerstad and Vernon L. Smith who co-authored "From Bubble to Depression?" (WSJ, 04/06/09, A15), the Great Depression and the current mess were fueled by consumer debt, in which category we would include the mountain of non-productive government debt.
In the 1920s money was created to purchase homes, to which we would add speculative share issues that couldn't pay for themselves out of their own earnings. The recently-collapsed housing bubble was similarly fueled by massive money creation to finance the purchase of assets that couldn't pay for themselves out of their own earnings. This was magnified by the practice of "securitizing" mortgages, creating money to purchase securities based not on capital goods, but consumer goods, with each new buyer bidding up the price even further with no change in the real value of the underlying asset — or in the ability of the home buyer to pay for the original mortgage.
Worse — as Dr. Harold Moulton pointed out in The Formation of Capital (1935) when refuting Major C. H. Douglas' "social credit" theories, creating money to clear existing inventories of consumer goods inflates the currency to that degree. This is because, consistent with Say's Law of Markets, the income to purchase all consumer goods that have been produced already exists in aggregate in the economy, having been used to finance the production of the consumer good.
In contrast, the "Dot Bomb" collapse involved only a small number of financial institutions, because, while Glass-Steagall had been taken off the books, investment banks had not yet consolidated with commercial banking and mortgage banking. Consequently, the "Dot Bombs" did not involve appreciable amounts of money creation, putting at risk only accumulated savings. Existing accumulations could "safely" be lost, and the removal of which from the economy would actually increase the value of the currency and thus consumer buying power through deflation.
The current financial crisis is, in a very real sense, much worse than that of 1929. Government debt was very low in 1929, while it is at such a level today that many experts are predicting imminent collapse. The "social surplus" of the country and the creditworthiness of the federal government that helped generate the illusion in the 1930s that the Keynesian "New Deal" was bringing about the recovery no longer exists.
If that were not enough, in the 1930s the productive capacity of the United States was fully intact, to such a degree that Keynes yammered on about "over-capacity" at a time when there were people in dire want. In contrast today, U.S. productive capacity has been shipped out of the country for decades, and in ways that have left the American consumer without either a job or ownership of the means of production to generate an adequate and secure income.
Thus, massive money creation is exactly the wrong thing to do to solve the current problem. It would be like pouring gasoline on an already raging inferno. The problem is that other factors complicate the situation, such as how people understand money, credit, and banking and, of course, investment and the process of money creation. We will look at that in tomorrow's posting.
In the 1920s money was created to purchase homes, to which we would add speculative share issues that couldn't pay for themselves out of their own earnings. The recently-collapsed housing bubble was similarly fueled by massive money creation to finance the purchase of assets that couldn't pay for themselves out of their own earnings. This was magnified by the practice of "securitizing" mortgages, creating money to purchase securities based not on capital goods, but consumer goods, with each new buyer bidding up the price even further with no change in the real value of the underlying asset — or in the ability of the home buyer to pay for the original mortgage.
Worse — as Dr. Harold Moulton pointed out in The Formation of Capital (1935) when refuting Major C. H. Douglas' "social credit" theories, creating money to clear existing inventories of consumer goods inflates the currency to that degree. This is because, consistent with Say's Law of Markets, the income to purchase all consumer goods that have been produced already exists in aggregate in the economy, having been used to finance the production of the consumer good.
In contrast, the "Dot Bomb" collapse involved only a small number of financial institutions, because, while Glass-Steagall had been taken off the books, investment banks had not yet consolidated with commercial banking and mortgage banking. Consequently, the "Dot Bombs" did not involve appreciable amounts of money creation, putting at risk only accumulated savings. Existing accumulations could "safely" be lost, and the removal of which from the economy would actually increase the value of the currency and thus consumer buying power through deflation.
The current financial crisis is, in a very real sense, much worse than that of 1929. Government debt was very low in 1929, while it is at such a level today that many experts are predicting imminent collapse. The "social surplus" of the country and the creditworthiness of the federal government that helped generate the illusion in the 1930s that the Keynesian "New Deal" was bringing about the recovery no longer exists.
If that were not enough, in the 1930s the productive capacity of the United States was fully intact, to such a degree that Keynes yammered on about "over-capacity" at a time when there were people in dire want. In contrast today, U.S. productive capacity has been shipped out of the country for decades, and in ways that have left the American consumer without either a job or ownership of the means of production to generate an adequate and secure income.
Thus, massive money creation is exactly the wrong thing to do to solve the current problem. It would be like pouring gasoline on an already raging inferno. The problem is that other factors complicate the situation, such as how people understand money, credit, and banking and, of course, investment and the process of money creation. We will look at that in tomorrow's posting.
Friday, April 3, 2009
Financial Accounting Standards Board: U.S. is Socialist
As we noted recently, we've been easing up on the Wall Street Journal and the Washington Post, probably because it is getting increasingly difficult to tell the difference between the two — except that the Journal has funnier comics. The announcement in the Post today of yesterday's change in basic accounting rules by the Financial Accounting Standards Board, however, demanded a letter not just to the Post, but to the Journal as well. Ordinarily you'd not think that changes in accounting rules would be of interest ("I became an accountant because I didn't have enough personality to be an actuary."), but you might want to reconsider that opinion in light of what was done yesterday.
Dear Sir(s):
The decision yesterday by the Financial Accounting Standards Board to permit companies to assign asset values based on considerations other than cost or market adequately illustrates the dangers of a command, State-run economy, and permitting the State to dictate accounting practice to "fix" a rule that never should have been promulgated in the first place.
"Marking to market" permits a company to recognize gains that have not been realized. A company can thereby inflate its earnings by recognizing as income profits that do not exist. When the securities involved show dramatic price increases fueled by speculation, as in the recent home mortgage bubble, losses when the bubble bursts are consequently far greater in scale than they otherwise would have been.
One of the most basic accounting principles is that the financial statements of a company fairly and accurately present the position of the company for the users of the statements. Allowing recognition of unrealized speculative gains undermines this principle by deceiving users with inflated gains that might not ever be realized. Attempting to "fix" the marking to market rule by allowing companies effectively to set their own values for assets without reference to any objective, third party source is a further violation of the principle by misleading users with subjective or phony valuations.
The only solution to the travesty of the marking to market rule is to abolish the rule and return to the conservative practice of valuing securities at the lower of cost or market, recognizing gains only when realized by disposal of the assets. Instead, by permitting the federal government to dictate accounting rules for political purposes instead of to reflect reality, and claiming that the market is "broken" and no longer valid for determining just prices, the FASB has tacitly acknowledged that the United States is now socialist.
Dear Sir(s):
The decision yesterday by the Financial Accounting Standards Board to permit companies to assign asset values based on considerations other than cost or market adequately illustrates the dangers of a command, State-run economy, and permitting the State to dictate accounting practice to "fix" a rule that never should have been promulgated in the first place.
"Marking to market" permits a company to recognize gains that have not been realized. A company can thereby inflate its earnings by recognizing as income profits that do not exist. When the securities involved show dramatic price increases fueled by speculation, as in the recent home mortgage bubble, losses when the bubble bursts are consequently far greater in scale than they otherwise would have been.
One of the most basic accounting principles is that the financial statements of a company fairly and accurately present the position of the company for the users of the statements. Allowing recognition of unrealized speculative gains undermines this principle by deceiving users with inflated gains that might not ever be realized. Attempting to "fix" the marking to market rule by allowing companies effectively to set their own values for assets without reference to any objective, third party source is a further violation of the principle by misleading users with subjective or phony valuations.
The only solution to the travesty of the marking to market rule is to abolish the rule and return to the conservative practice of valuing securities at the lower of cost or market, recognizing gains only when realized by disposal of the assets. Instead, by permitting the federal government to dictate accounting rules for political purposes instead of to reflect reality, and claiming that the market is "broken" and no longer valid for determining just prices, the FASB has tacitly acknowledged that the United States is now socialist.
News from the Network, Vol. 2, No. 14
The stock market is, of course, reacting very positively to the G-20 talks and the promise of yet more money to be thrown at the problem (i.e., into the pockets of speculators and gamblers). It would not be too surprising, however, to see the market make a drastic plunge within the next two weeks as 1) nothing magically happens to put people back to work to engage in production of marketable goods and services, 2) spread out direct ownership of productive assets so that the people who produce gain the maximum benefit of what they produce, and 3) people figure out that nothing substantive has been done, simply the same thing on a different day.
Nevertheless, we have been making some progress, despite the best efforts of the powers-that-be:
Nevertheless, we have been making some progress, despite the best efforts of the powers-that-be:
• On Monday, Norman Kurland and Dawn Brohawn of CESJ met with Antonio Betancourt and Walter Fauntroy of the Summit Council for World Peace to strategize on bringing the "Metro East Citizens' Land Cooperative" project in East St. Louis to the attention of legislators in Washington, DC. The meeting was lively, and several of the participants went later to Capitol Hill to present the project to selected members of Congress.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.
• On Tuesday, Norman Kurland met with members of the American Auto Worker Ownership Committee to strategize on presenting the concept to members of Congress as an alternative to the sale of Chrysler to Fiat and the State takeover of General Motors. While the meeting was in progress, Mr. Obama (unfortunately not present at the meeting) did his best unconsciously to undermine the effort by announcing his plan for solving the crisis, most aspects of which were not consistent with maintaining or creating broad-based worker or citizen direct ownership of America's automobile industry.
• Planning for the peaceful demonstration outside the Federal Reserve Building in Washington, DC, on Wednesday, April 15, 2009 is reaching the final stages. The idea is not to demand the abolition of the Federal Reserve or of money, but, through acts of social justice, to reform the institution so that it better meets the needs of everyone and fills the role it was intended and designed to fill: provide a "flexible currency" that maintains a stable value and grows and shrinks with the needs of the private sector. Some of the changes we advocate from the original mission of the Federal Reserve are 1) Abolish fractional reserve commercial banking in favor of a 100% reserve requirement consisting of cash, commercial bank demand deposits at the Federal Reserve, and government securities. 2) Shut down "open market" operations and prohibit the Federal Reserve from any further dealings in either primary or secondary government securities, except to divest itself gradually of its current holdings as the deficit is reduced under Capital Homesteading. 3) Extend the term of the "qualified paper" that commercial banks can discount at the Federal Reserve to at least 60 months from the current 90 days, and allow for refinancing or extension beyond that time for qualified paper whose reasonable period of repayment is longer. 4) Prohibit the printing of currency or the creation of demand deposits by the Federal Reserve unless to purchase qualified paper from commercial banks, thereby creating an asset-backed currency. 5) Add to the terms of "qualified paper" that any loan must be extended in ways that broaden the base of direct ownership of productive assets among citizens and residents of the United States.
• Personally, this writer would like to consider a sixth change in Federal Reserve policy: Require that the federal government keep on deposit at the Federal Reserve sufficient cash — not bonds or other government securities — to redeem all outstanding coin issued by the United States Mint after 1964, when silver was removed from the coinage. This would close off the ability of the federal government to make a profit on the "agio" or "seniorage" of the metallic token currency, and thereby monetize a deficit by flooding the country with unnecessary coinage. This is similar to the constraints imposed on National Banks in 1864 to prevent them from issuing currency without backing, and is a variation on Henry Simon's "Chicago Plan" developed in the 1930s to prevent commercial banks from expanding the money supply through fractional reserve banking — except that in this case, the idea is to keep the State instead of the banks from being able to create money at will by striking coin which costs a fraction of its face value. ("Agio" and "seniorage" are terms meaning the difference between what it costs to mint a coin and its face value, usually considered "profit" by the State, but in reality a liability.).
• If you would like to see access to capital credit opened up to ordinary citizens, consider participating in the peaceful demonstration at the Federal Reserve. Anyone dressed as the Easter Bunny or in a costume of similar incendiary nature, or carrying a banner reading, "Abolish Money" or words to that effect without suggesting a positive and peaceful remedy, will be asked politely to leave and go to London, where such antics appear to be more culturally acceptable.
• If you haven't done so, consider visiting the Amazon or Barnes and Noble web pages for Capital Homesteading for Every Citizen, In Defense of Human Dignity, and our edition of William Cobbett's The Emigrant's Guide, and posting a review — after reading the books, of course. All the links to the Amazon and Barnes and Noble web pages are on the right-hand sidebar of this blog.
• Some interest has been expressed in using CESJ publications as fundraisers. We've developed a "kit" that, while it might still have a few bugs to iron out, may provide a way for non-profit organizations to raise some funds without having to spend money except for copying the one-page catalogue/order form. If you're interested, send an e-mail to CESJ, and we'll send you the three-page Word document as an attached file.
• As of this morning, we have had visitors from 46 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, with Canada, the UK, Finland, and the Philippines. The most popular posting is still the one on Abraham Lincoln and the Homestead Act, although for the rest the emphasis has shifted from the vagaries of Keynesian economics to the disasters caused by reliance on Keynesian economics.
Thursday, April 2, 2009
The System Has Cancer — What's the Answer?
The American Heritage Dictionary defines "cancer" as, "Any of various malignant neoplasms characterized by the proliferation of anaplastic cells that tend to invade surrounding tissue and metastasize to new body sites." If that's too much for you, a secondary definition is, "A pernicious, spreading evil." The bottom line is that the cells of the body, its most basic component parts, go wild, doing what they're not supposed to be doing, and destroying the body by doing so. Thus, saying that the social order — "the system" — has cancer is the most apt analogy that we can make. The question then becomes what to do about it.
Obviously the solution is not to destroy the system, as many refugees from the 1960s and their latter-day wannabes insist will fix everything. Yes, killing the patient will terminate the cancer, but also the life of the patient. What's the point of trying to repair the system by bringing it down? If a patient is sick, apply remedies until there is a restoration of health. If the system is corrupt or broken, organize with others and carry out acts of social justice directed at the institutions of the common good so that the institutions once again fill the roles that they were intended and designed to fill.
Ever since this blog began, we've been recommending the Just Third Way as the answer, especially as the principles are applied in Capital Homesteading and the Abraham Federation. What we've tended not to stress so much, however, is the specific technique — the "act of social justice" — by means of which the desired ends can be achieved.
"Social justice" as defined by "America's greatest social philosopher" the Reverend William J. Ferree, S.M., Ph.D., is the particular virtue whose object is the common good of all human society, rather than, as with individual justice, the individual good of any member or group. Social justice is one of the basic social virtues in the field of social morality. Social justice guides humans as social beings in creating and perfecting organized human interactions, or institutions. It is the principle for restoring moral balance and harmony in the social order.
Social justice imposes on each member of society a personal responsibility to carry out acts of social justice. That is, to work with others to design and continually perfect our institutions as tools for personal and social development. To the extent an institution violates the human dignity of any person or group, organized acts of social justice are required to correct the defects in that institution. Actions such as "social justice tithing," for example, recognize a personal responsibility to devote a certain amount of time toward working with others to improve the organizations and institutions in which we live and work.
At this critical time in history, every concerned person should read Father Ferree's short pamphlet, Introduction to Social Justice, available as a "free download" from the website of the Center for Economic and Social Justice ("CESJ"). CESJ is also currently working on an edition combined with Father Ferree's discourses on social charity, which will be available from Amazon and Barnes and Noble, as well as in bulk from Economic Justice Media sometime in the current year.
Obviously the solution is not to destroy the system, as many refugees from the 1960s and their latter-day wannabes insist will fix everything. Yes, killing the patient will terminate the cancer, but also the life of the patient. What's the point of trying to repair the system by bringing it down? If a patient is sick, apply remedies until there is a restoration of health. If the system is corrupt or broken, organize with others and carry out acts of social justice directed at the institutions of the common good so that the institutions once again fill the roles that they were intended and designed to fill.
Ever since this blog began, we've been recommending the Just Third Way as the answer, especially as the principles are applied in Capital Homesteading and the Abraham Federation. What we've tended not to stress so much, however, is the specific technique — the "act of social justice" — by means of which the desired ends can be achieved.
"Social justice" as defined by "America's greatest social philosopher" the Reverend William J. Ferree, S.M., Ph.D., is the particular virtue whose object is the common good of all human society, rather than, as with individual justice, the individual good of any member or group. Social justice is one of the basic social virtues in the field of social morality. Social justice guides humans as social beings in creating and perfecting organized human interactions, or institutions. It is the principle for restoring moral balance and harmony in the social order.
Social justice imposes on each member of society a personal responsibility to carry out acts of social justice. That is, to work with others to design and continually perfect our institutions as tools for personal and social development. To the extent an institution violates the human dignity of any person or group, organized acts of social justice are required to correct the defects in that institution. Actions such as "social justice tithing," for example, recognize a personal responsibility to devote a certain amount of time toward working with others to improve the organizations and institutions in which we live and work.
At this critical time in history, every concerned person should read Father Ferree's short pamphlet, Introduction to Social Justice, available as a "free download" from the website of the Center for Economic and Social Justice ("CESJ"). CESJ is also currently working on an edition combined with Father Ferree's discourses on social charity, which will be available from Amazon and Barnes and Noble, as well as in bulk from Economic Justice Media sometime in the current year.
Wednesday, April 1, 2009
Not an April Fool: "Abolish Money"
Aside from such fooleries as a protestor dressed up as the Easter Bunny, there is not a lot to laugh about in light of the violence that is rocking London today. What is described as a crowd of roughly 4,000 "anarchists, anti-capitalists, environmentalists and others" rioted through London's financial district in what they are calling "Financial Fool's Day." It is not clear, however, which group, the capitalists or the rioters, is being more idiotic.
Neither side can truly be said to understand money, whether it's the capitalist belief that the secondary markets for debt and equity run the world, or the protesters' demand to "abolish money." "Money" is derived from production and has a necessary link to productive assets and marketable goods and services. The capitalists are chasing what, to all intents and purposes, is a chimera that has no existence apart from their own imaginations. For their part, the rioters are effectively demanding an end to all economic activity, which makes up the bulk of social interaction.
Neither side appears to understand that "money" is a social construct, the result of agreements — promises — between people. The capitalists are busily making promises for other people to keep, while the protesters want to do away with promises. Neither side has a firm grasp on reality.
While they might not realize it, a proposal that has the capacity to solve the problems of both sides can be found in CESJ's Capital Homesteading proposal, in which reform of the institutions of money, credit, and banking play a pivotal role. It's at least worth investigating, and makes much more sense than dressing up like the Easter Bunny to illustrate some obscure point or disguise an end run around police to destroy property and endanger lives.
Neither side can truly be said to understand money, whether it's the capitalist belief that the secondary markets for debt and equity run the world, or the protesters' demand to "abolish money." "Money" is derived from production and has a necessary link to productive assets and marketable goods and services. The capitalists are chasing what, to all intents and purposes, is a chimera that has no existence apart from their own imaginations. For their part, the rioters are effectively demanding an end to all economic activity, which makes up the bulk of social interaction.
Neither side appears to understand that "money" is a social construct, the result of agreements — promises — between people. The capitalists are busily making promises for other people to keep, while the protesters want to do away with promises. Neither side has a firm grasp on reality.
While they might not realize it, a proposal that has the capacity to solve the problems of both sides can be found in CESJ's Capital Homesteading proposal, in which reform of the institutions of money, credit, and banking play a pivotal role. It's at least worth investigating, and makes much more sense than dressing up like the Easter Bunny to illustrate some obscure point or disguise an end run around police to destroy property and endanger lives.
Tuesday, March 31, 2009
"Let It Be Done According to Your Will"
The Latin word "fiat" means, "Let it be done." In English common law, a "fiat" is "a short order or warrant of a judge or magistrate directing some act to be done; an authority issuing from some competent source for the doing of some legal act." (Black's Law Dictionary) It thus comes across as something more than a coincidence that Mr. Obama's "solution" to the current automakers' crisis is that Chrysler should be acquired by Fiat. Matters have reached such a pitch that we received an unsubstantiated report an hour ago that Cerberus Capital Management, L.P., the company holding the majority of Chrysler shares outstanding (in the neighborhood of 80% we understand) has turned over its shares to the federal government.
We repeat that we have not confirmed this report. If true, it shows an almost complete disregard for an industry that many regard as quintessentially American (regardless who invented the automobile . . .), and the flight overseas not only of jobs, but of basic industries. The sad thing is that we have the capacity in this country not only to save the U.S. auto industry, but CESJ has realized that capacity by helping to develop a specific proposal to have the workers and retirees purchase the companies at a fair market value following a Chapter 11 reorganization.
With so little time to organize a protest over the federal government's narrow vision and heavy-handed approach to the situation, it's not clear what can be done in the time allotted. The fact that any plan has to meet with the approval of the very organization that has already specified what will be acceptable is highly irregular, to say the least. There is no objective third party that can stand back and give a little perspective, or assess the fairness of what is proposed.
We have heard another unsubstantiated report that there will be an effort to organize a "town meeting" in Detroit. Whether such a meeting (if it comes off) will have any effect is hard to say. What is clear, however, is that if you don't want America's auto industry to be moved overseas, or even eliminated entirely to meet the corporate strategy of Fiat, then it may be time now to send an e-mail or telephone your Senators and your Representative in Congress. Let them know that you are in favor of a worker buyout, and not the potential loss of still more jobs and industries overseas.
We repeat that we have not confirmed this report. If true, it shows an almost complete disregard for an industry that many regard as quintessentially American (regardless who invented the automobile . . .), and the flight overseas not only of jobs, but of basic industries. The sad thing is that we have the capacity in this country not only to save the U.S. auto industry, but CESJ has realized that capacity by helping to develop a specific proposal to have the workers and retirees purchase the companies at a fair market value following a Chapter 11 reorganization.
With so little time to organize a protest over the federal government's narrow vision and heavy-handed approach to the situation, it's not clear what can be done in the time allotted. The fact that any plan has to meet with the approval of the very organization that has already specified what will be acceptable is highly irregular, to say the least. There is no objective third party that can stand back and give a little perspective, or assess the fairness of what is proposed.
We have heard another unsubstantiated report that there will be an effort to organize a "town meeting" in Detroit. Whether such a meeting (if it comes off) will have any effect is hard to say. What is clear, however, is that if you don't want America's auto industry to be moved overseas, or even eliminated entirely to meet the corporate strategy of Fiat, then it may be time now to send an e-mail or telephone your Senators and your Representative in Congress. Let them know that you are in favor of a worker buyout, and not the potential loss of still more jobs and industries overseas.
Monday, March 30, 2009
Will "Going Tribal" Save Ireland?
We've not been able to pay as close attention to the situation in Ireland as we should, and have let our posting on the economic crisis as it affects Ireland slow down some. Part of this is due to the fact that the problems in this country are coming across as almost insurmountable, especially as Mr. Obama and his advisers are ignoring the ownership solution embodied in Capital Homesteading. The other part is that we aren't getting the response rate from Ireland that we got at first. Even the following letter that we sent a little over a week ago hasn't generated any response, although Mr. McWilliams, who wrote an interesting piece in the Irish Independent, seemed open to innovative solutions.
March 18, 2009
David McWilliams
Irish Independent
dmcwilliams@independent.ie
Dear Mr. McWilliams:
Earlier today the Financial Secretary of the Colonel John Fitzgerald Division of the Ancient Order of Hibernians in America, Arlington County, Virginia, USA, forwarded me a copy of your article in today's Irish Independent, "Going Tribal Will Save Us From Economic Oblivion." The article makes a number of very good, even necessary points, but omits one very important factor: how to finance the economic upgrade you recommend for Ireland.
To be blunt, relying on foreign investment, as your example of Israel has done, has made the country a virtual dependency of the United States, with a consequent increase in resentment against an already unpopular group. When times get hard and people search for a scapegoat (as we are seeing at present), Jew-hating increases dramatically, just as it did in the economic chaos in Germany after the First World War. Nor are the Jews the only group targeted. The Irish in the United States were widely reviled from colonial times to as late as the 1950s in some areas for "stealing" jobs that many considered reserved for "WASPs" (White-Anglo-Saxon-Protestants). "No Irish Need Apply" signs were not uncommon even in the 1920s.
There is, however, a better way, one that we at the non-profit Center for Economic and Social Justice ("CESJ") have been working to present to politicians and other influential individuals in a number of countries, including our own United States, Israel, and, yes, Ireland. Some months back we sent e-mails introducing a concept we call "Capital Homesteading" to every member of the Seanad and the Dáil. We even received a number of acknowledgments, and sent bound copies of our book, Capital Homesteading for Every Citizen, to those that sounded most receptive, as well as to Mr. Cowen (we had previously provided a link to the free .pdf on the CESJ web site, www.cesj.org). In particular, Mr. Charlie O'Connor, the member for Dublin South West, brought Capital Homesteading to the attention of Mr. Brian Lenihan, who, for a time before other troubles intervened, appeared to be following up on the possibilities offered by the proposal.
I believe that adding a Capital Homestead feature to your proposal would flesh it out and enhance both its financial and its political feasibility. I encourage you to visit the Capital Homesteading pages on the CESJ web site, as well as the dedicated web page. Once you have looked over the material, you will want to talk to Dr. Norman G. Kurland, president of CESJ, who is one of the world's leading experts on worker ownership and ownership-expanding social technologies. Dr. Kurland may be reached via e-mail or by telephone. Dr. Kurland is very open to interviews, and in fact was interviewed two weeks ago by a journalist in Warsaw, Poland, who was referred to Dr. Kurland by Dr. Norman Bailey, former chief economic advisor to the United States National Security Council under President Reagan.
March 18, 2009
David McWilliams
Irish Independent
dmcwilliams@independent.ie
Dear Mr. McWilliams:
Earlier today the Financial Secretary of the Colonel John Fitzgerald Division of the Ancient Order of Hibernians in America, Arlington County, Virginia, USA, forwarded me a copy of your article in today's Irish Independent, "Going Tribal Will Save Us From Economic Oblivion." The article makes a number of very good, even necessary points, but omits one very important factor: how to finance the economic upgrade you recommend for Ireland.
To be blunt, relying on foreign investment, as your example of Israel has done, has made the country a virtual dependency of the United States, with a consequent increase in resentment against an already unpopular group. When times get hard and people search for a scapegoat (as we are seeing at present), Jew-hating increases dramatically, just as it did in the economic chaos in Germany after the First World War. Nor are the Jews the only group targeted. The Irish in the United States were widely reviled from colonial times to as late as the 1950s in some areas for "stealing" jobs that many considered reserved for "WASPs" (White-Anglo-Saxon-Protestants). "No Irish Need Apply" signs were not uncommon even in the 1920s.
There is, however, a better way, one that we at the non-profit Center for Economic and Social Justice ("CESJ") have been working to present to politicians and other influential individuals in a number of countries, including our own United States, Israel, and, yes, Ireland. Some months back we sent e-mails introducing a concept we call "Capital Homesteading" to every member of the Seanad and the Dáil. We even received a number of acknowledgments, and sent bound copies of our book, Capital Homesteading for Every Citizen, to those that sounded most receptive, as well as to Mr. Cowen (we had previously provided a link to the free .pdf on the CESJ web site, www.cesj.org). In particular, Mr. Charlie O'Connor, the member for Dublin South West, brought Capital Homesteading to the attention of Mr. Brian Lenihan, who, for a time before other troubles intervened, appeared to be following up on the possibilities offered by the proposal.
I believe that adding a Capital Homestead feature to your proposal would flesh it out and enhance both its financial and its political feasibility. I encourage you to visit the Capital Homesteading pages on the CESJ web site, as well as the dedicated web page. Once you have looked over the material, you will want to talk to Dr. Norman G. Kurland, president of CESJ, who is one of the world's leading experts on worker ownership and ownership-expanding social technologies. Dr. Kurland may be reached via e-mail or by telephone. Dr. Kurland is very open to interviews, and in fact was interviewed two weeks ago by a journalist in Warsaw, Poland, who was referred to Dr. Kurland by Dr. Norman Bailey, former chief economic advisor to the United States National Security Council under President Reagan.
Friday, March 27, 2009
News from the Network, Vol. 2, No. 13
The most astounding news this week is the apparent ease with which Geithner and Company are seizing control of the most important financial system in the world, all apparently without a thought about the dangers of concentrated power of any kind, but especially economic and financial power. There seems to be very little appreciation of the truth of the dictum that Lord Acton quoted to Mary Gladstone, that power tends to corrupt, absolute power tends to corrupt absolutely.
Nevertheless, there are a few pieces of good news in the Global Justice Movement this past week:
Nevertheless, there are a few pieces of good news in the Global Justice Movement this past week:
• Mr. Mark Gross, O.P.L. (Lay Fraternity of St. Dominic), editor of Christ in the World!, the newsletter of the Lay Provincial Council of the Western Dominican Province, will be publishing a short piece on Father Andrew F. Morlion, O.P., Ph.D., who was active in CESJ until his death in 1987. Father Morlion referred to his friend, Father William J. Ferree, S.M., Ph.D., as "America's greatest social philosopher" when Father Ferree died in 1985. Contact information can be found on the Council's web site.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.
• Norman G. Kurland and Michael D. Greaney are in New York City today meeting with Father Kevin Dance, C.P., head of the Passionist NGO at the United Nations. The meeting was arranged by Father Cassian Yuhaus, C.P., Rector of the Shrine of St. Ann's Basilica in Scranton, Pennsylvania. The meeting is to acquaint Father Dance with the Just Third Way and its potential to solve the current global financial crisis, especially as applied in the Abraham Federation and Capital Homesteading.
• We received a note from His Eminence, Achille Cardinal Silvestrini, thanking CESJ for its support in his efforts to educate the youth of today in proper principles of morality and sound reason, especially the Cardinal's school, Villa Nazareth. His Eminence praised CESJ for its own work, and stated his belief that Pope Benedict XVI would bless CESJ's efforts to promote the Just Third Way.
• On Wednesday, Norman Kurland had a meeting on the East St. Louis project in Washington, DC, during which they agreed to join the Coalition for Energy Independence and Citizen Ownership. Mayor Alvin Parks of East St. Louis and Mayor Nathaniel O'Bannon of Brooklyn, Illinois attended the meeting. Antonio Betancourt, Walter Fauntroy, L. Dean Price, Laura Zacher, Rich Vogel of Whiting Turner Construction, and Marvin Warshay who headed the NASA-Louis Advanced Energy Systems were also there.
• Also on Wednesday there was a meeting with Congressman Jerry Costello (D), who had read the MECLC proposal, who indicated he liked it and would do all he could to raise the money for the $70 million prototype, which would be a global exemplar for green energy development and provide a new industry within East St. Louis and fourteen neighboring cities. It would also provide an ownership share in the land leasing and the profits from the exemplar to all the citizens of the area. Congressman Costello said he would be in contact with Senator Dick Durban to get the federal government to fund the project.
• Later that same day, the team met with Senator Dick Durban (D) of Illinois, one of the top three most powerful senators, who was born and raised in East St. Louis. After the senator indicated his interest, the team had an extensive meeting with two of the senator's aides, who indicated some possible sources of funding the projects.
• On Thursday there was a press conference in the morning at the National Press Club on the East St. Louis project, at which a series of excellent presentations were made. The conference was videotaped for presentation on YouTube. We will post a link when the video is up.
• On Thursday after the press conference, the team had a meeting with Congressman John Shimkus (R), on the House Energy Committee, and was very supportive. He said he is a good friend of Congressman Costello, and indicated he would support the $70 million proposal.
• As of this morning, we have had visitors from 48 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, with Canada, the UK, Finland, and the Philippines.
Thursday, March 26, 2009
Regulation, Part IV: The Federal Reserve Shell Game
The virtual complete freedom of action and lack of accountability with which control over money and credit vests the State is a very, very bad thing. That is why the proposals of Messrs. Obama, Geithner, and Bernanke should make every American citizen extremely nervous. The declaration attributed to Baron Rothschild may be apocryphal, but that doesn't make it any less true: "Give me control over money and credit, and I care not who makes the laws."
Nevertheless, we can't ignore the effect that such concentration of power has on the economy as well as the political order. When faced with the spreading fear and chaos that inevitably accompanies economic disruption on such a scale, people will almost inevitably seek leaders and policies that promise to correct the situation and restore order again.
The fact that such restoration of order comes at a very high price (as the German people found out in 1933) is, when people are terrified, usually considered a price well worth paying . . . sometime in the future, after we're all safely dead. "In the long run," Keynes was fond of saying, "we're all dead." This dictum seems to have been the guiding principle behind Keynesian economics and the political and economic policies based on the teachings of the Great Defunct Economist. We are now faced with having to pay the price for dead generations, and (true to human nature reacting against seriously-flawed institutions) are busily trying to refinance the debt so that future generations will pay instead of us.
Thus a minor problem like a shift in the backing of the currency becomes major when its real effects begin to be felt. To understand what has happened, we should look at things from an accounting perspective.
In accounting terms, the backing of the currency has shifted from current assets to a contingency. A "current asset" is an asset that is either cash, or is expected to turn into cash within one "accounting period" (usually a year). By the terms of the 1913 Federal Reserve Act, all new money created by the Federal Reserve was to be backed by liens on productive assets and the present value of future production. This loan paper was to be "discounted" (sold) to the Federal Reserve for terms not to exceed 90 days, thereby categorizing all such "qualified paper" as "current assets."
A "contingency" on the other hand, is "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (hereinafter a "gain contingency") or loss (hereinafter a "loss contingency") to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur." (FASB No. 5, "Accounting for Contingencies")
Accountants are generally cautioned to avoid listing contingent gains on an organization's financial statements to avoid inflating the value of the company and distorting the picture of the firm to be gained by users of the financial statements — including banks and other financial institutions who, on the basis of a listed contingent gain, might be tempted to lend money to a company that otherwise would not be considered a good credit risk.
By backing the currency with future tax collections, which should be classified as a contingency, not a current asset, the federal government is creating several problems. Most obviously, it is not certain how much can be collected in taxes once the currency has been destabilized in this manner, or whether, in light of the continuing deficits, there will ever be enough collected in taxes to pay off the loans the government has floated.
The more subtle (and much more damaging) problem, however, is that having disconnected money from production by shifting the backing of the currency from production to debt, the federal government has seriously compromised its ability to collect taxes at all. If people cannot obtain financing for productive projects and the financing is not directly linked to the productive project being financed, production will necessarily fall as the number of feasible projects brought to banks and other financial institutions and intermediaries declines. As production falls, people's incomes will decline: production = income. As income declines, the tax base erodes, and the State's tax revenues fall.
What then happens under the current Keynesian paradigm only accelerates the growing financial crisis. As tax revenues fall, the government prints increasing amounts of money backed only by future tax revenues . . . which revenues become increasingly ephemeral as the erosion of the value of the currency progresses. The more money the government creates and spends on non-productive purposes (e.g., bailouts, infrastructure that doesn't generate its own repayment, welfare, political pork, etc.), the worse the situation becomes. The very thing that the State does to cover its expenditures makes it impossible to meet those expenditures, to say nothing of destroying the economy on which the money that the State insists on issuing without an asset backing relies.
Nevertheless, we can't ignore the effect that such concentration of power has on the economy as well as the political order. When faced with the spreading fear and chaos that inevitably accompanies economic disruption on such a scale, people will almost inevitably seek leaders and policies that promise to correct the situation and restore order again.
The fact that such restoration of order comes at a very high price (as the German people found out in 1933) is, when people are terrified, usually considered a price well worth paying . . . sometime in the future, after we're all safely dead. "In the long run," Keynes was fond of saying, "we're all dead." This dictum seems to have been the guiding principle behind Keynesian economics and the political and economic policies based on the teachings of the Great Defunct Economist. We are now faced with having to pay the price for dead generations, and (true to human nature reacting against seriously-flawed institutions) are busily trying to refinance the debt so that future generations will pay instead of us.
Thus a minor problem like a shift in the backing of the currency becomes major when its real effects begin to be felt. To understand what has happened, we should look at things from an accounting perspective.
In accounting terms, the backing of the currency has shifted from current assets to a contingency. A "current asset" is an asset that is either cash, or is expected to turn into cash within one "accounting period" (usually a year). By the terms of the 1913 Federal Reserve Act, all new money created by the Federal Reserve was to be backed by liens on productive assets and the present value of future production. This loan paper was to be "discounted" (sold) to the Federal Reserve for terms not to exceed 90 days, thereby categorizing all such "qualified paper" as "current assets."
A "contingency" on the other hand, is "an existing condition, situation, or set of circumstances involving uncertainty as to possible gain (hereinafter a "gain contingency") or loss (hereinafter a "loss contingency") to an enterprise that will ultimately be resolved when one or more future events occur or fail to occur." (FASB No. 5, "Accounting for Contingencies")
Accountants are generally cautioned to avoid listing contingent gains on an organization's financial statements to avoid inflating the value of the company and distorting the picture of the firm to be gained by users of the financial statements — including banks and other financial institutions who, on the basis of a listed contingent gain, might be tempted to lend money to a company that otherwise would not be considered a good credit risk.
By backing the currency with future tax collections, which should be classified as a contingency, not a current asset, the federal government is creating several problems. Most obviously, it is not certain how much can be collected in taxes once the currency has been destabilized in this manner, or whether, in light of the continuing deficits, there will ever be enough collected in taxes to pay off the loans the government has floated.
The more subtle (and much more damaging) problem, however, is that having disconnected money from production by shifting the backing of the currency from production to debt, the federal government has seriously compromised its ability to collect taxes at all. If people cannot obtain financing for productive projects and the financing is not directly linked to the productive project being financed, production will necessarily fall as the number of feasible projects brought to banks and other financial institutions and intermediaries declines. As production falls, people's incomes will decline: production = income. As income declines, the tax base erodes, and the State's tax revenues fall.
What then happens under the current Keynesian paradigm only accelerates the growing financial crisis. As tax revenues fall, the government prints increasing amounts of money backed only by future tax revenues . . . which revenues become increasingly ephemeral as the erosion of the value of the currency progresses. The more money the government creates and spends on non-productive purposes (e.g., bailouts, infrastructure that doesn't generate its own repayment, welfare, political pork, etc.), the worse the situation becomes. The very thing that the State does to cover its expenditures makes it impossible to meet those expenditures, to say nothing of destroying the economy on which the money that the State insists on issuing without an asset backing relies.
Wednesday, March 25, 2009
Free Choice, Union Style
On March 23, 2009, we received the following e-mail from someone who (for obvious reasons) I will not name. The website referred to is the "American Auto Worker Ownership Committee" ("AAWOC").
Frankly, the push for a government bailout is communist. When a company is considered "too big to fail," the plain truth is that, ultimately, that company is too big to exist in terms of the free market. The idea that a company can be "too big to fail" in effect argues that it has placed itself beyond the constraints of the free market and is now an integral part of the common good, and thus subject to direct control of the State for the benefit of everyone. This is called "communism." Management (or at least some of them) is ridiculing the free market and advocating communism by turning the language upside-down, just as George Orwell predicted in 1984.
As Karl Marx himself declared in The Communist Manifesto (1848), "The theory of the communists can be summed up in the single sentence: the abolition of private property." Evidently the union leaders don't share the late Walter Reuther's openmindedness, while management lacks his knowledge of communism and private property.
With these examples of union pressure and management ridicule before us, it casts grave doubts on the honesty of those campaigning to abolish the secret ballot when voting whether to unionize, and in some cases abolish elections altogether. If the behavior reported to us is any indication, the so-called "Employee Free Choice Act" would simply provide limitless opportunities for union thugs and shoulder strikers to bully and browbeat workers into surrendering their natural rights of liberty and property to the union, while management looks on and cheers.
Rather than threats or ridicule, the UAW and management might want to try delivering justice to the workers and the public at large by reforming themselves as an "Ownership Union." They could trade a percentage of fixed labor costs for unlimited flexible supplemental incomes based on tax-free corporate incomes that flow into the pockets of workers in the form of dividends, productivity bonuses, additional shares of stock and eventually diversified assets. After paying off the credit for purchasing all buyout and modernization shares in the company through a leveraged Employee Stock Ownership Plan ("ESOP"), a portion of future company profits would be used to acquire a diversified tax-exempt portfolio of outside securities for enhancing the retirement security of ESOP participants.
A volunteer went to work today at Toledo Jeep, and placed information on tables referring workers to our website. Another worker told him that at the monthly union meeting a couple of weeks ago our Union Chairman stated that any employee passing information out about the employee ownership will be disciplined.Within the last 36 hours, we got a telephone call from another individual associated with the AAWOC. This individual presented the outline of the buyout plan to individuals in management. Their reaction was to ridicule the plan, and label it "communism." They did not explain how, when the plan is for workers to have direct private property stakes in the means of production, it could possibly be described as "communism"!
Frankly, the push for a government bailout is communist. When a company is considered "too big to fail," the plain truth is that, ultimately, that company is too big to exist in terms of the free market. The idea that a company can be "too big to fail" in effect argues that it has placed itself beyond the constraints of the free market and is now an integral part of the common good, and thus subject to direct control of the State for the benefit of everyone. This is called "communism." Management (or at least some of them) is ridiculing the free market and advocating communism by turning the language upside-down, just as George Orwell predicted in 1984.
As Karl Marx himself declared in The Communist Manifesto (1848), "The theory of the communists can be summed up in the single sentence: the abolition of private property." Evidently the union leaders don't share the late Walter Reuther's openmindedness, while management lacks his knowledge of communism and private property.
With these examples of union pressure and management ridicule before us, it casts grave doubts on the honesty of those campaigning to abolish the secret ballot when voting whether to unionize, and in some cases abolish elections altogether. If the behavior reported to us is any indication, the so-called "Employee Free Choice Act" would simply provide limitless opportunities for union thugs and shoulder strikers to bully and browbeat workers into surrendering their natural rights of liberty and property to the union, while management looks on and cheers.
Rather than threats or ridicule, the UAW and management might want to try delivering justice to the workers and the public at large by reforming themselves as an "Ownership Union." They could trade a percentage of fixed labor costs for unlimited flexible supplemental incomes based on tax-free corporate incomes that flow into the pockets of workers in the form of dividends, productivity bonuses, additional shares of stock and eventually diversified assets. After paying off the credit for purchasing all buyout and modernization shares in the company through a leveraged Employee Stock Ownership Plan ("ESOP"), a portion of future company profits would be used to acquire a diversified tax-exempt portfolio of outside securities for enhancing the retirement security of ESOP participants.
Own or be owned. You have nothing to lose but your chains.
Tuesday, March 24, 2009
"Cut Us In or Cut It Out!"
Early this morning we received the following press release for a press conference to be held on Thursday, March 26, 2009 at the National Press Building in Washington, DC, USA. The conference is to announce the development of a proposal to address the current economic and energy crises in a practical and financially feasible (to say nothing of moral) way.
NEWS RELEASE
The Coalition For Energy Independence And Citizen Ownership
Contact: Laura Filbert Zacher, 314-772-6047 (o); 314-650-9681 (c) or 202-714-1468
"Cut Us In or Cut It Out!"
East St. Louis Delivers Solution
To America's Energy and Economic Crisis
For Immediate Release. On March 26, 2009, 10:00 a.m., at the National Press Building in Washington, D.C., leaders from one of the most poverty-impacted communities in the U.S., the City of East St. Louis and fourteen surrounding communities in Southern Illinois, will travel to the nation's capital to launch a comprehensive stimulus solution of their own, and to call for its support as a viable antidote to the unprecedented financial crisis in the United States.
Millions of Americans who have been devastated by the economic crises that now grip the country and the world have a message for those who are currently designing bailout initiatives: "Cut Us In or Cut It Out!" They are, of course, talking about the "Troubled Asset Relief Program" (TARP) that seems clearly to be a bailout plan for the "wealthy few" on Wall Street but not for the "unmonied many" on the Side Streets and Main Streets of America who are being devastated by mortgage foreclosures, job losses and the collapse of the credit system for both individuals and small businesses. They are saying to their government's policy makers: "Cut us in on the bailout or cut it out for the wealthy few!"
The Hon. Rev. Walter E. Fauntroy, who served for twenty years as D.C. Representative to the U.S. Congress, six years of which were as Chairman of the House Banking Subcommittee on Monetary Policy, will present the Hon. Alvin Parks, Mayor of East St. Louis, IL and the Hon. Nathaniel O'Bannon, Mayor of Brooklyn, Il. They will detail a plan that the people of these communities have developed with the invaluable assistance of a team of political, technology and economic advisors to lift themselves and, indeed, the nation out of the quagmire of public policies that have thus far failed to resolve the crisis.
East St. Louis, IL, has experienced a prolonged unemployment rate of 23%, and overall the poverty rate is 31% in the fifteen communities comprising the East St. Louis Metro East Riverfront Communities area. The project that the two mayors will unveil will introduce a revitalization plan for the region called the American Bottoms that will turn every citizen into a shareholder of the newly formed Metro East Citizens Land Cooperative. The plan calls for advanced renewable energy systems (ARES) to be owned by every local citizen; it is the first step in a national strategy called "capital homesteading" that would finance energy independence and economic empowerment of every citizen.
The first E-Macrosystem advanced renewable energy system and manufacturing center will create approximately 2,100 jobs: 200 full-time and part-time temporary construction jobs (with expected two year duration), 300 full time permanent jobs (after all phases of ramping-up are complete), and 1,600 regional / national enhancement job opportunities (including public services, agriculture, forestry, medical, retail, general services and manufacturing of component parts outside of the East St. Louis region).
The MECLC is based on the model of the for-profit, professionally managed, citizen-owned "Community Investment Corporation." MECLC's planned project will demonstrate integrated technology that produces emissions-free, independent power from all forms of waste and sunlight. Other benefits of the plan are ARES component manufacturing, robust job creation and broad citizen ownership of productive assets. Equity and profits from the new energy systems and local land development will flow to each citizen.
Net profits will be distributed to the citizen-owners from the sales of by-products generated from an E-Macrosystem ARES and manufacturing center. By-product sales include: green Premium Power to the grid (demanded by the pharmaceutical and computer chip industries, among others), potable water, medical oxygen, clean hydrogen, methanol, paraffins, other carbonaceous products, and through the emissions-free disposal of medical and hazardous industrial waste, agricultural waste, and biomass. Additionally, each E-Macrosystem has leasable floor space.
The MECLC plan initiates commercialization of ARES technologies developed in the U.S. space and defense programs. ARES involve solar fuel cell regeneration, waste steam reforming systems, and coal-based complex thermal composite materials for construction. MECLC's turnkey pilot project is ready for final design and construction under the professional oversight of Equitech International, LLC and Whiting Turner Construction Company, a top 5 U.S. construction and bonding firm.
The Hon. Alvin Parks, Mayor of East St. Louis, IL and the Hon. Nathaniel O'Bannon, Mayor of Brooklyn, IL, will be joined by a team of technology advisors to outline the initiative and subsequently will hand deliver a letter for President Obama, outlining the detail of the plan.
###
Other individuals who will be available at the press conference to answer questions regarding the MECLC project:
National Press Building
529 14th Street NW (corner of 14th and F St)
13th Floor
Washington, DC 20045
NEWS RELEASE
The Coalition For Energy Independence And Citizen Ownership
Contact: Laura Filbert Zacher, 314-772-6047 (o); 314-650-9681 (c) or 202-714-1468
"Cut Us In or Cut It Out!"
East St. Louis Delivers Solution
To America's Energy and Economic Crisis
For Immediate Release. On March 26, 2009, 10:00 a.m., at the National Press Building in Washington, D.C., leaders from one of the most poverty-impacted communities in the U.S., the City of East St. Louis and fourteen surrounding communities in Southern Illinois, will travel to the nation's capital to launch a comprehensive stimulus solution of their own, and to call for its support as a viable antidote to the unprecedented financial crisis in the United States.
Millions of Americans who have been devastated by the economic crises that now grip the country and the world have a message for those who are currently designing bailout initiatives: "Cut Us In or Cut It Out!" They are, of course, talking about the "Troubled Asset Relief Program" (TARP) that seems clearly to be a bailout plan for the "wealthy few" on Wall Street but not for the "unmonied many" on the Side Streets and Main Streets of America who are being devastated by mortgage foreclosures, job losses and the collapse of the credit system for both individuals and small businesses. They are saying to their government's policy makers: "Cut us in on the bailout or cut it out for the wealthy few!"
The Hon. Rev. Walter E. Fauntroy, who served for twenty years as D.C. Representative to the U.S. Congress, six years of which were as Chairman of the House Banking Subcommittee on Monetary Policy, will present the Hon. Alvin Parks, Mayor of East St. Louis, IL and the Hon. Nathaniel O'Bannon, Mayor of Brooklyn, Il. They will detail a plan that the people of these communities have developed with the invaluable assistance of a team of political, technology and economic advisors to lift themselves and, indeed, the nation out of the quagmire of public policies that have thus far failed to resolve the crisis.
East St. Louis, IL, has experienced a prolonged unemployment rate of 23%, and overall the poverty rate is 31% in the fifteen communities comprising the East St. Louis Metro East Riverfront Communities area. The project that the two mayors will unveil will introduce a revitalization plan for the region called the American Bottoms that will turn every citizen into a shareholder of the newly formed Metro East Citizens Land Cooperative. The plan calls for advanced renewable energy systems (ARES) to be owned by every local citizen; it is the first step in a national strategy called "capital homesteading" that would finance energy independence and economic empowerment of every citizen.
The first E-Macrosystem advanced renewable energy system and manufacturing center will create approximately 2,100 jobs: 200 full-time and part-time temporary construction jobs (with expected two year duration), 300 full time permanent jobs (after all phases of ramping-up are complete), and 1,600 regional / national enhancement job opportunities (including public services, agriculture, forestry, medical, retail, general services and manufacturing of component parts outside of the East St. Louis region).
The MECLC is based on the model of the for-profit, professionally managed, citizen-owned "Community Investment Corporation." MECLC's planned project will demonstrate integrated technology that produces emissions-free, independent power from all forms of waste and sunlight. Other benefits of the plan are ARES component manufacturing, robust job creation and broad citizen ownership of productive assets. Equity and profits from the new energy systems and local land development will flow to each citizen.
Net profits will be distributed to the citizen-owners from the sales of by-products generated from an E-Macrosystem ARES and manufacturing center. By-product sales include: green Premium Power to the grid (demanded by the pharmaceutical and computer chip industries, among others), potable water, medical oxygen, clean hydrogen, methanol, paraffins, other carbonaceous products, and through the emissions-free disposal of medical and hazardous industrial waste, agricultural waste, and biomass. Additionally, each E-Macrosystem has leasable floor space.
The MECLC plan initiates commercialization of ARES technologies developed in the U.S. space and defense programs. ARES involve solar fuel cell regeneration, waste steam reforming systems, and coal-based complex thermal composite materials for construction. MECLC's turnkey pilot project is ready for final design and construction under the professional oversight of Equitech International, LLC and Whiting Turner Construction Company, a top 5 U.S. construction and bonding firm.
The Hon. Alvin Parks, Mayor of East St. Louis, IL and the Hon. Nathaniel O'Bannon, Mayor of Brooklyn, IL, will be joined by a team of technology advisors to outline the initiative and subsequently will hand deliver a letter for President Obama, outlining the detail of the plan.
###
Other individuals who will be available at the press conference to answer questions regarding the MECLC project:
• Mr. Dean Price, Chairman and Agent for Equitech International, LLC (EI) & ARES, LLC, former University Architect, Georgetown University, Principal Investigator and creator for first academic building 300kW Solar (1983); the first Liquid Fueled Fuel Cell Heavy Duty Bus (30ft), providing the basis for Georgetown's on-going Advanced Vehicle Department. Price managed the University's program for the Solar Fuel Cell Regeneration proof-of-Concept at Edwards AFB, CA, with NASA / JPL.Location of the Press Conference:
• Dr. Norman Kurland, pioneer in employee-owned stock plans (ESOPs), leader in establishing for-profit community investment corporations: Managing Director, Equity Expansion International consultants. Co-founder of a Washington-based think tank, Center for Economic and Social Justice.
• Mr. Richard Vogel, EI Chief Executive Construction Manager; Senior Vice President of the Whiting-Turner Contracting Company, a top-5 construction firm, Whiting-Turner has 29 offices nationwide, revenues of $3.9 billion, and a $4 billion bonding capacity.
• Mr. Clarence Pearson, FAIA Architect and EI CEO for Architecture and Engineering, faculty and former Chairman, University of the District of Columbia; background in continuing education in commercial code and contract law, computer-aided architectural design and management, interactive computer systems, and construction management. He has worked on a wide variety of very large convention centers, correctional institution master planning, custom-designed residences and apartment complexes.
• Mr. Jay Laskin, EI Vice President, Fuel Cells and Related Components Research; President of HyEnergy Consulting, LLC, Baltimore MD, an enterprise to provide technical, sales, and marketing expertise related to a wide variety of hydrogen businesses, products and usage; retired from Teledyne Energy Systems Inc. as Director of Marketing and Sales where he was responsible for all commercial / industrial product sales, and overall engineering services, worldwide distribution and sales networks; extensive experience with development and application engineering, manufacturing, scheduling, quality control, and financial management.
• Dr. Marvin Warshay, retired Chief of the Power Propulsion Electro-Chemical Technology Branch, and Chief of Solar Dynamic Programs at NASA Lewis (now Glenn) Research Center; managed all the major development of fuel cell systems and batteries for NASA; he managed DOE, DOD, ARPA and contributed to Georgetown University's Fuel Cell Bus Program.
• Mr. Richard Theodor Kusiolek: EI Telecommunications Chief; President and Chairman of TransGlobal Net, Inc. (TGN); more than 20 years of experience in the voice data convergence with a focus on Satellite and Terrestrial wireless communications networks, quick cycle technology new product introductions, project management, and strategic marketing management; TGN Company was sponsored under the Clinton Administration's Advanced Technology Program in 1994; the proposal was the catalyst for the many initiatives that enhanced the Information Highway.
• Bonnie Horner-Mueller, EI Senior Telecommunications Consultant, CEO Vidisolutions, Inc. Ms. Horner-Mueller was president and chairman of FreBon International. She has in-depth experience in providing advanced specialized communications, video-conferencing, and telemedicine communities.
National Press Building
529 14th Street NW (corner of 14th and F St)
13th Floor
Washington, DC 20045
Monday, March 23, 2009
We are Seeing the Future, and It Doesn't Work
We've been letting the Wall Street Journal off the hook for a while, mostly because the stunts being performed by the federal government and the Federal Reserve are, while less amusing, more panic-inducing. Today's "Review & Outlook," however, was just too off-the-wall to ignore, coming as it does from a presumed champion of free markets and limited State involvement in the economy.
Dear Sir(s):
Your "Review & Outlook" commentary in today's issue of the Wall Street Journal ("A Smoot-Hawley Moment?" WSJ, 03/23/09, A14) neglects one small, if significant aspect of using taxpayer money to meet the terms of a contract between AIG and certain employees. The United States taxpayer was not a party to any contract between AIG and its employees. The contract, if any, involving the United States taxpayer and his money was between the federal government and AIG, not the federal government, AIG, and AIG's employees.
All contracts involve a "meeting of the minds." If this is deemed not to have occurred, no valid contract exists. While not explicitly stated, the money was presumably given to AIG on the understanding that it would be used to bail them out from having wasted their shareholders' money speculating in assets of questionable value. All of the discussion about the bailout in the halls of Congress and the media focused on this issue, not amounts due under employment contracts, valid or invalid, earned or unearned, to which the taxpayer was not a party. By using the money to pay bonuses, AIG violated the implied terms of the contract between AIG and the United States taxpayer. As there was no meeting of the minds, there was no valid contract. AIG thus obtained the money under false pretenses.
All of this, however, is actually a diversion from the real issue: should the government be bailing out the private sector, when the free market and the legal system already have adequate remedies available in the form of Chapter 7 and Chapter 11 bankruptcies and reorganizations? A company that is "too big to fail" is, ultimately, too big to exist in terms of the free market. The idea that a company can be "too big to fail" in effect argues that it has placed itself beyond the constraints of the free market and is now an integral part of the common good, and thus subject to direct control of the State for the benefit of everyone. This is called "socialism."
The Wall Street Journal has placed itself in the uncomfortable position of trying to defend socialism with free market rhetoric; of supporting contracts by violating them; of undermining private property by alleging offenses against private property. Karl Marx couldn't have arranged it better, claiming that, "The last capitalist we hang shall be the one who sold us the rope." AIG and the Wall Street Journal are busily selling rope to politicians and bureaucrats who are all too willing to buy.
Dear Sir(s):
Your "Review & Outlook" commentary in today's issue of the Wall Street Journal ("A Smoot-Hawley Moment?" WSJ, 03/23/09, A14) neglects one small, if significant aspect of using taxpayer money to meet the terms of a contract between AIG and certain employees. The United States taxpayer was not a party to any contract between AIG and its employees. The contract, if any, involving the United States taxpayer and his money was between the federal government and AIG, not the federal government, AIG, and AIG's employees.
All contracts involve a "meeting of the minds." If this is deemed not to have occurred, no valid contract exists. While not explicitly stated, the money was presumably given to AIG on the understanding that it would be used to bail them out from having wasted their shareholders' money speculating in assets of questionable value. All of the discussion about the bailout in the halls of Congress and the media focused on this issue, not amounts due under employment contracts, valid or invalid, earned or unearned, to which the taxpayer was not a party. By using the money to pay bonuses, AIG violated the implied terms of the contract between AIG and the United States taxpayer. As there was no meeting of the minds, there was no valid contract. AIG thus obtained the money under false pretenses.
All of this, however, is actually a diversion from the real issue: should the government be bailing out the private sector, when the free market and the legal system already have adequate remedies available in the form of Chapter 7 and Chapter 11 bankruptcies and reorganizations? A company that is "too big to fail" is, ultimately, too big to exist in terms of the free market. The idea that a company can be "too big to fail" in effect argues that it has placed itself beyond the constraints of the free market and is now an integral part of the common good, and thus subject to direct control of the State for the benefit of everyone. This is called "socialism."
The Wall Street Journal has placed itself in the uncomfortable position of trying to defend socialism with free market rhetoric; of supporting contracts by violating them; of undermining private property by alleging offenses against private property. Karl Marx couldn't have arranged it better, claiming that, "The last capitalist we hang shall be the one who sold us the rope." AIG and the Wall Street Journal are busily selling rope to politicians and bureaucrats who are all too willing to buy.
Friday, March 20, 2009
News from the Network, Vol. 2, No. 12
Despite a slight decline early today in the stock market, it does not yet appear that the gamblers and speculators on Wall Street have caught on to the fact that the announcement earlier this week that the Federal Reserve plans to pump $1.2 trillion into the market is not exactly a "good thing." Creating money to purchase existing equity shares and debt instruments is a very serious mistake, and one of the primary causes of the current financial and economic meltdown as well as the Crash of 1929.
New money that is not linked directly through private property to the present value of production, whether existing production, or investment in new capital formation intended to produce future marketable goods and services, is purely inflationary. Any rise in share values that results from such an infusion of cash is completely artificial and is not related to an actual increase in the real value of the company underlying the shares. It is, in effect, trying to solve the problems caused by the previous bubble by blowing it up again, thereby setting the system up for another, worse decline.
Nevertheless, our efforts to insert some sanity into the system continue:
New money that is not linked directly through private property to the present value of production, whether existing production, or investment in new capital formation intended to produce future marketable goods and services, is purely inflationary. Any rise in share values that results from such an infusion of cash is completely artificial and is not related to an actual increase in the real value of the company underlying the shares. It is, in effect, trying to solve the problems caused by the previous bubble by blowing it up again, thereby setting the system up for another, worse decline.
Nevertheless, our efforts to insert some sanity into the system continue:
• We received word yesterday that the annual rally at the Federal Reserve building in Washington, DC, has been moved from the previously-announced date of Friday, April 17, 2009, to Wednesday, April 15, 2009. Anyone who has managed to file his or her annual declaration of tax dependency (a.k.a., "Federal Form 1040" or some variation thereof) is urged to attend in order to politely and respectfully protest policies by the Federal Reserve and the federal government that distort what should be a just, straightforward, and easy-to-understand tax system for raising revenue to meet current government expenditures without borrowing, and to suggest reforms of the system to restore the Federal Reserve and the Internal Revenue Service to their original functions. Again: The annual rally at the Federal Reserve has been moved to Wednesday, April 15, 2009. Further details will follow.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.
• CESJ's monthly "Executive Committee Meeting" was held on Wednesday, March 18, 2009. This marked the beginning of an experiment with a new format, in which the business meeting required by the bylaws is held on a different day from the news and information session, used mostly for instructional and educational purposes.
• Review copies of CESJ's publications, Curing World Poverty (1994), Capital Homesteading for Every Citizen (2004), In Defense of Human Dignity (2008) and William Cobbett's The Emigrant's Guide (2008) were, at the suggestion of Anna Lemaire of Liguorian magazine's advertising department, sent to that magazine. The Reverend Cassian Yuhaus, C.P., Rector of the Shrine of St. Ann's Basilica in Scranton, Pennsylvania, also requested a copy of In Defense of Human Dignity.
• Ms. Shirley Starke, coordinator of the "Irish Special Interest Group" of American Mensa, Ltd., sent in some commentary on our "Easter, 1916" posting on March 17, 2009. Ms. Starke stated that the posting was "wonderful," and requested permission (granted) to include the posting in the next issue of the SIG's newsletter.
• We sent a letter to the "Redemptorists," a Catholic religious congregation, that (according to news reports), lost approximately a third of their assets in the Madoff ponzi scheme. We invited them to dialogue with us on ways to implement the Just Third Way as one possible means to help prevent such scandals from reoccurring. If your organization was similarly affected, or if you are simply interested in advancing the cause of economic justice for all, check out the volunteer opportunities listed on the CESJ web site, and consider participating in the rally at the Federal Reserve on April 15, 2009 in Washington, DC.
• As of this morning, we have had visitors from 47 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, with Canada, the UK, the Philippines, and Finland rounding out our "top five" countries where we're read the most. The top spots for the average time spent on the blog, however, go to Venezuela, Jamaica, Ghana, New Zealand, and Brazil, in that order. Our most popular posting is still the one on Abraham Lincoln's 1862 Homestead Act. Of the remaining "Top Ten," except for one news notes posting, all are concerned with the flaws of Keynesian economics. For some reason, the average time spent reading the posting on the Keynesian "paradox of thrift" is more than an hour and a half, which suggests that some people may be studying this particular Keynesian fallacy very closely.
Thursday, March 19, 2009
Regulation, Part III: The New Dictatorship of Money
By any standard of measurement, the decision of the Federal Reserve to "pump" $1.2 trillion into "the financial system" (meaning the stock market) is enough to terrify anyone who has a modicum of common sense left. ("Fed to Pump $1.2 Trillion Into Markets," Washington Post, 03/19/09, p. A1.) Such a move, a serious indication of stark, raving financial and economic insanity, is virtually guaranteed to begin finishing off what is left of the U.S. economy. Clearly motivated by political rather than economic or financial considerations, the decision is custom-made to destroy whatever confidence remains in the dollar.
The only question is how this situation was allowed to develop in a country presumably run for the benefit "of the people, by the people, and for the people." The answer is actually simple, once we free ourselves of the shackles imposed by the Great Defunct Economist, John Maynard Keynes.
By adhering to the letter rather than to the intent of the law, the federal government and the Federal Reserve have, between them, shifted the backing of the currency. The backing of the currency (or equity shares, or any other type of financial instrument) is what financial experts call the "underlying," with the additional word "asset" understood. The "underlying" of the currency has changed from "qualified industrial, commercial, and agricultural paper" (i.e., hard assets representing existing production and the present value of future production), to the federal government's ability to collect taxes. The currency has thereby shifted from being asset backed, to being debt backed.
This has had the expected effect. The value of the dollar has been falling for decades, prices have been rising, ownership of the means of production has become increasingly concentrated, basic industries have been leaving the country, and fewer and fewer people are able to make a decent income solely by selling their labor.
There are many other factors that have caused this situation, of course, but the virtual monopoly over the creation of money currently enjoyed by the federal government in unacknowledged alliance with the Federal Reserve has all but ensured that the great mass of people will be cut off from access to the means of acquiring and possessing private property. Further, freed from the necessity of having to tax in order to raise the money it needs, the federal government has acquired more and more power over the lives of American citizens, calling to mind the warning voiced by Pope Pius XI in 1931 in his "encyclical" Quadragesimo Anno ("On the Restructuring of the Social Order"), which itself echoed those issued by Henry C. Adams in his 1898 study, Public Debt: An Essay in the Science of Finance. As Pius XI declared,
The only question is how this situation was allowed to develop in a country presumably run for the benefit "of the people, by the people, and for the people." The answer is actually simple, once we free ourselves of the shackles imposed by the Great Defunct Economist, John Maynard Keynes.
By adhering to the letter rather than to the intent of the law, the federal government and the Federal Reserve have, between them, shifted the backing of the currency. The backing of the currency (or equity shares, or any other type of financial instrument) is what financial experts call the "underlying," with the additional word "asset" understood. The "underlying" of the currency has changed from "qualified industrial, commercial, and agricultural paper" (i.e., hard assets representing existing production and the present value of future production), to the federal government's ability to collect taxes. The currency has thereby shifted from being asset backed, to being debt backed.
This has had the expected effect. The value of the dollar has been falling for decades, prices have been rising, ownership of the means of production has become increasingly concentrated, basic industries have been leaving the country, and fewer and fewer people are able to make a decent income solely by selling their labor.
There are many other factors that have caused this situation, of course, but the virtual monopoly over the creation of money currently enjoyed by the federal government in unacknowledged alliance with the Federal Reserve has all but ensured that the great mass of people will be cut off from access to the means of acquiring and possessing private property. Further, freed from the necessity of having to tax in order to raise the money it needs, the federal government has acquired more and more power over the lives of American citizens, calling to mind the warning voiced by Pope Pius XI in 1931 in his "encyclical" Quadragesimo Anno ("On the Restructuring of the Social Order"), which itself echoed those issued by Henry C. Adams in his 1898 study, Public Debt: An Essay in the Science of Finance. As Pius XI declared,
105. In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure.We don't need to be Catholic, or even believe in any God, gods, or goddesses to see the common sense of what Pius XI said and the dangers inherent in ignoring his warning. We need only substitute "State bureaucrats" for the "trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure" to realize the danger of allowing the federal government — or any government, for that matter — to have such enormous control over money and credit, and thus complete mastery over the economic life's blood of every man, woman, and child in the country.
106. This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.
Wednesday, March 18, 2009
Regulation, Part II: The Federal Reserve Ponzi Scheme
Once those irritating systemic regulations such as Glass-Steagall that required separation of function among financial institutions and prevented the formation of financial oligarchies were removed, people immediately began using their new freedoms in a manner consistent with their self-interest. This was no different from what they had done before, and is fully consistent with human nature.
The problem was that now self-interest, instead of being exercised within a system that tried to look to the long-term health of the financial system, was exercised within a system redesigned to promote short-term expedients that bolstered gambling and speculation, favored concentration of financial power, and fostered incompatible functions and contradictory end goals. The "Greater Fool Theory," in which enormous profits are made by luring in new "investors" to the real estate market and other ponzi schemes governed the financial world.
Everything went along swimmingly until the speculative bubble that sustained everything started to implode. This happened when it was discovered that the assets underlying the massive amounts of derivatives either didn't have the value assigned to them, or didn't even exist.
Most people will immediately think of the Madoff scandal when the latter case is mentioned. They fail to realize, however, that the United States government is far more guilty than Madoff of issuing paper with nothing behind it, to the tune of more than $10 trillion. Compared to what the federal government has managed to pull off, Madoff is a piker.
What the federal government has done is undermine the fact that the derivative we call "money" necessarily has production and productive capacity as its underlying asset if we want to enjoy the benefits of a sound currency and stable economy. Since 1917 however, due to a loophole in the Federal Reserve Act of 1913, the United States government and the Federal Reserve have been circumventing the structural, internal regulation embodied in the Act designed and intended to prevent the federal government from being able to "capture" the central bank and use it to monetize its deficits.
The problem was that now self-interest, instead of being exercised within a system that tried to look to the long-term health of the financial system, was exercised within a system redesigned to promote short-term expedients that bolstered gambling and speculation, favored concentration of financial power, and fostered incompatible functions and contradictory end goals. The "Greater Fool Theory," in which enormous profits are made by luring in new "investors" to the real estate market and other ponzi schemes governed the financial world.
Everything went along swimmingly until the speculative bubble that sustained everything started to implode. This happened when it was discovered that the assets underlying the massive amounts of derivatives either didn't have the value assigned to them, or didn't even exist.
Most people will immediately think of the Madoff scandal when the latter case is mentioned. They fail to realize, however, that the United States government is far more guilty than Madoff of issuing paper with nothing behind it, to the tune of more than $10 trillion. Compared to what the federal government has managed to pull off, Madoff is a piker.
What the federal government has done is undermine the fact that the derivative we call "money" necessarily has production and productive capacity as its underlying asset if we want to enjoy the benefits of a sound currency and stable economy. Since 1917 however, due to a loophole in the Federal Reserve Act of 1913, the United States government and the Federal Reserve have been circumventing the structural, internal regulation embodied in the Act designed and intended to prevent the federal government from being able to "capture" the central bank and use it to monetize its deficits.
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