Yesterday we discovered we're in a serious dilemma if we accept both Say's Law of Markets and its application in the real bills doctrine, and the natural moral law based on God's Essence that is self-realized in His Intellect. (Translation: we base our understanding of what's right on what God is that we see reflected in humanity and discerned by reason — lex ratio — instead of simply accepting on faith what somebody tells us God said — lex voluntas.)
To try and state the dilemma as simply as possible, Say's Law is that we cannot receive what another has produced in an economic transaction unless we offer something we have produced by means of our labor, capital, or land that the other perceives as being of equal or greater value. We cannot receive something simply because we need it, except in extreme cases (Rerum Novarum, § 22). We must have something of at least equivalent value to offer in exchange. The problem is that most of us have nothing of equivalent value to offer in exchange.
This is consistent with the traditional understanding of the natural rights of private property and free association. To be able to offer something in exchange, we have to own it, and we have to be free to dispose of it to whomever we will, and make a contract (create money) to carry out the transaction. We own something either because it has been freely given to us (e.g., our labor because it is inseparable from our bodies, which we own, a gift, inheritance, and so on), or because we have produced something by means of what we own (labor, land, capital) and either consumed it ourselves, or traded what we have produced for the productions of others, to mutual benefit.
In the late 18th and early 19th centuries when Adam Smith and Jean-Baptiste Say wrote, it seemed obvious that human labor was the primary factor of production. Smith, in fact, based his "invisible hand" argument on the assumption that human labor would always be the primary factor of production, and thus the primary mode of distribution. All that labor produces goes by natural right to the owner of labor. All that capital produces goes by natural right to the owner of capital. Because Smith considered human labor "permanently predominant" (our term, not Smith's), no rich man, however "greedy and rapacious" (Smith's terms, not ours — The Theory of Moral Sentiments, 1759), could satisfy his greed without employing the poor. As Smith reasoned, wealth would be distributed as equitably as if "ownership of the earth" was as broadly and evenly distributed as ownership of human labor. Hence, we have the weird distortion of Smith's thought that has cropped up in recent decades that "greed is a virtue," or "greed is good."
The problem is that labor does not have a secure primacy of place in the economic process. The effect of technology is not to enhance human labor, but to replace it. As technology advances, the value of human labor in the productive process decreases relative to that of capital. As capital becomes increasingly productive relative to labor, the market value of labor falls below what the human worker needs to support himself and his dependents in a manner consistent with the demands of human dignity.
Consequently, political demands increase for distribution and redistribution of production based not on equivalence of inputs in a transaction, but on need. To allow this, basic definitions of natural rights, especially private property and freedom of association, have to be changed to accommodate the new situation. This requires a system that employs, as one commentator put it, "a theory of human society peculiar to itself" (Quadragesimo Anno, § 120) in order to shift the understanding of justice from "to each what each is due as an independent other" (contract), to, "to each what each needs as a dependent" (status). This shift is usually called "socialism," but has many other labels, term succeeding term whenever it becomes obvious that what Kelso and Adler called "needism" is contrary to the natural law principles that govern civil society, and thus to essential human nature.
Thus the dilemma: Say's Law claims that if some goods remain unsold, it is because other goods are not produced. If we wish to stimulate effective demand, we must produce something by means of our labor, land, and capital. Most people, however, own nothing other than their labor with which to produce marketable goods and services — and the value of labor is declining relative to capital as an input to production as technology advances. It is therefore critical that "the great mass of people" become owners of capital (Rerum Novarum, § 46), but "But except from pay for work, from what source can a man who has nothing else but work from which to obtain food and the necessaries of life set anything aside for himself through practicing frugality?" (Quadragesimo Anno, § 63)
That is, unless people cut consumption and save, how are they to accumulate money savings in order to purchase the capital that is replacing their labor in the production process and driving down the relative value of their labor to the point where they can no longer survive, much less save?
Keynes thought he had the answer: redefine basic natural rights such as private property and free association, put the State in charge of the economy, and redistribute purchasing power and force savings through inflation. This prescription has driven the world to the brink of bankruptcy, and made the very people it was intended to help worse off than before.
Kelso and Adler had a better answer — and one consistent with essential human nature, that is, the natural moral law: allow ordinary people who currently have only their labor to sell to exercise their natural rights of private property and freedom of association by entering into contracts (create money) to purchase capital, pay for the capital with the future earnings of the capital, and thereafter enjoy capital income to supplement or replace what can be earned by labor. That is, replace the presumed necessity of cutting consumption and accumulating money savings to finance new capital formation, with increasing consumption and using future savings to repay investments already made.
The basic "paradigm" for this type of financing that would restore the functioning of Say's Law of Markets was detailed by Harold Moulton in his contra-New Deal treatise, The Formation of Capital (1935). Kelso and Adler expanded and refined Moulton's analysis in The Capitalist Manifesto (1958) and The New Capitalists (1961). The Center for Economic and Social Justice ("CESJ"), applied the work of Kelso and Adler in Capital Homesteading for Every Citizen (2004), a specific proposal designed to turn the economy around in the shortest possible time to the benefit of all, and with harm to none. (All of these books, by the way, are available in the "Just Third Way 'Bookstore'" over there to your right.)
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THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
Tuesday, February 8, 2011
Monday, February 7, 2011
The Problem with Money, Part V: Say's Law and the Slavery of Savings
As we noted in the previous posting in this series, Say's Law of Markets is that we cannot consume unless we produce, and we cannot trade for the surplus productions of others unless we ourselves are producing something. As Jean-Baptiste Say explained in his Letters to Malthus, "It is therefore really and absolutely with their produce that they make their purchases: therefore it is impossible for them to purchase any articles whatever, to a greater amount than those they have produced, either by themselves or through the means of their capital or their land." As Say continued to explain to the obtuse Reverend Malthus,
That's all very well, but if someone doesn't own any capital or land, how is he or she supposed to produce a marketable good or service when the value of the labor that he or she does own is declining in value as an input to production in competition with advancing technology and cheaper labor elsewhere? As most people firmly believe, it is impossible to finance the acquisition of capital without first cutting consumption and accumulating money savings. This is the basic premise what developed into the Currency School of finance, and which Thomas Malthus, David Ricardo, Karl Marx, and others accepted without question, and which was countered by the work of Adam Smith, Henry Thornton, Jean-Baptiste Say, John Fullarton, Henry Dunning Macleod, and Harold Moulton, among others, and which developed in the Banking School of finance.
The most common solution to the conundrum presented by assuming that new capital formation cannot be financed except by cutting consumption and accumulating money savings is to redefine essential principles of the natural moral law, and claim that God or the State mandates the change. Thus, in an effort to break the monopoly that the rich enjoy over existing accumulations of savings as a result of their monopoly over ownership of capital, private property, freedom of association (liberty/contract), and even the pursuit of happiness are redefined in order to allow the State to take over private property, money creation, and individual lives in an effort to make the economy work.
Because no redefinition can really change a natural right such as life, liberty, property, or the pursuit of happiness, however, all such efforts by the State to control the economy necessarily cause bigger problems than the ones they are trying to solve. Not only that, but remedies, effective or not, take longer to benefit people, if they ever do.
As a case in point, the first Great Depression lasted for five years (1893-1898), and was characterized by very little action on the part of the state or federal governments, despite the rising demands that the government "do something," preferably printing more money in the hope that this would spur new investment and create jobs. The second Great Depression, characterized by massive government action and intrusion into the economy, lasted for ten years (1930-1940), and was ended not by the government, but by the Second World War. If the pattern holds, the current Great Depression (2007-date), characterized by ever-increasing government efforts to control the economy, may go on for fifteen or twenty years, at which time there will be no economy left to "stimulate."
The problem is that when you rely exclusively on existing accumulations of savings to finance new capital formation, the only ways that those who don't own capital can get capital is either for the rich to voluntarily divest themselves of their wealth, or for the State to redefine essential natural rights and redistribute — and the first is unlikely, while the second is unjust.
The situation seems hopeless — which it is, if we insist on remaining within the paradigm defined by reliance on existing accumulations of savings as the sole source of financing for new capital formation. There is, however, a way out, which we will describe tomorrow in the final posting in this series.
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"From these premises I have drawn a conclusion which appears to me evident, but the consequences of which appear to have alarmed you. I had said — As no one can purchase the produce of another except with his own produce, as the amount for which we can buy is equal to that which we can produce, the more we can produce the more we can purchase. From whence proceeds this other conclusion, which you refuse to admit — That if certain commodities do not sell, it is because others are not produced, and that it is the raising produce alone which opens a market for the sale of produce."
That's all very well, but if someone doesn't own any capital or land, how is he or she supposed to produce a marketable good or service when the value of the labor that he or she does own is declining in value as an input to production in competition with advancing technology and cheaper labor elsewhere? As most people firmly believe, it is impossible to finance the acquisition of capital without first cutting consumption and accumulating money savings. This is the basic premise what developed into the Currency School of finance, and which Thomas Malthus, David Ricardo, Karl Marx, and others accepted without question, and which was countered by the work of Adam Smith, Henry Thornton, Jean-Baptiste Say, John Fullarton, Henry Dunning Macleod, and Harold Moulton, among others, and which developed in the Banking School of finance.
The most common solution to the conundrum presented by assuming that new capital formation cannot be financed except by cutting consumption and accumulating money savings is to redefine essential principles of the natural moral law, and claim that God or the State mandates the change. Thus, in an effort to break the monopoly that the rich enjoy over existing accumulations of savings as a result of their monopoly over ownership of capital, private property, freedom of association (liberty/contract), and even the pursuit of happiness are redefined in order to allow the State to take over private property, money creation, and individual lives in an effort to make the economy work.
Because no redefinition can really change a natural right such as life, liberty, property, or the pursuit of happiness, however, all such efforts by the State to control the economy necessarily cause bigger problems than the ones they are trying to solve. Not only that, but remedies, effective or not, take longer to benefit people, if they ever do.
As a case in point, the first Great Depression lasted for five years (1893-1898), and was characterized by very little action on the part of the state or federal governments, despite the rising demands that the government "do something," preferably printing more money in the hope that this would spur new investment and create jobs. The second Great Depression, characterized by massive government action and intrusion into the economy, lasted for ten years (1930-1940), and was ended not by the government, but by the Second World War. If the pattern holds, the current Great Depression (2007-date), characterized by ever-increasing government efforts to control the economy, may go on for fifteen or twenty years, at which time there will be no economy left to "stimulate."
The problem is that when you rely exclusively on existing accumulations of savings to finance new capital formation, the only ways that those who don't own capital can get capital is either for the rich to voluntarily divest themselves of their wealth, or for the State to redefine essential natural rights and redistribute — and the first is unlikely, while the second is unjust.
The situation seems hopeless — which it is, if we insist on remaining within the paradigm defined by reliance on existing accumulations of savings as the sole source of financing for new capital formation. There is, however, a way out, which we will describe tomorrow in the final posting in this series.
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Friday, February 4, 2011
News from the Network, Vol. 4, No. 5
We don't have time to go into it in any depth right now (or at all, for that matter), but Dawn K. Brohawn, CESJ's Director of Communications, came across a quote from the collection we've been compiling for many years. It dates from 1982, and concerns the analysis of Dr. Raj Reddy of Carnegie-Mellon. Dr. Reddy predicted, "Currently, around 25 to 28 million people are employed in manufacturing in America. I expect it to go down to less than 3 million by the year 2010. So we have only 30 years to decide what those millions of people are going to be doing."
The standard answer at the time — and one that continues to haunt us today in the never-ending quest for "job-creation" during the "jobless recovery" (a.k.a., "The Great Depression III"), is that new jobs will somehow magically appear in the service industries, leisure, research, and white-collar work. In response, Dr. Reddy said (in effect) "Wanna bet?" As he really said, "even there the same revolution is coming." He went on to comment that, "no one [in power] understands what's happening or grasps the extent of what's coming." ("Artificial Intelligence," Business Week, March 8, 1982.)
So, how accurate was Dr. Reddy's prediction?
Pretty accurate, as the figures from the Bureau of Labor Statistics suggest. The number of people employed in production ("manufacturing") in 2008 was 8,973,000, and in 2009 7,654,000. Doing a straight line regression, this gives us the estimated number of people engaged in production in 2010 (actual figures aren't available yet) as 6,335,000, 2011 as a little over 5 million, and 2012 could be as few as 3.7 million.
Of course, 2008 and 2009 were periods of economic recovery, so we should expect the number of jobs to decline even faster, once the economy gets back on an even keel. (Unless there's something drastically wrong with the claim that the "recession" is over . . . What? You think that reasoning is any screwier than the claim that the "recession" is over?)
Anyway, as the U.S. economy continues to implode under the illusion that the economic problems have been "fixed" by bloating the financial services industry, increasing State takeover of the private sector, and assuming a gargantuan debt, it becomes painfully clear that, unless Capital Homesteading is adopted by 2012 at the latest, the U.S. can very quickly find itself locked into an irrecoverable economic downward spiral.
You can't have 400 million people supported by the productive efforts of the 0.92% of the population projected to own direct productive labor by 2012, or the less than 1% of the population who own most of the capital — that is, 98% of the population supported by the other 2% — without social disruption, even revolution on a massive scale. As Benjamin Watkins Leigh pointed out in 1820, "Power and Property can be separated for a time by force or fraud — but divorced, never. For as soon as the pang of separation is felt . . . property will purchase Power, or Power will take over Property."
So what have we been doing to extend ownership of capital to the millions being displaced by advancing technology and cheaper labor in other regions?
• Hernando de Soto has weighed in on the troubles in Egypt. With the rather unimportant caveat (at this point) that his orientation is based on existing accumulations of savings, de Soto pinpoints one of the flaws in what may be civil society's most important institution, the legal structures surrounding private property. Many people in Egypt do not have recognized legal title to what they have in their possession, even if they have built it up from scratch. Getting the proper permits and licenses in less than a decade for even a small business is a Herculean task. Credit, collateral, or anything else involving commerce above the level of barter or the smallest of cash transactions? Forget it. As de Soto concluded his op-ed piece in yesterday's Wall Street Journal, "Leaders and governments may change and more democracy might come to Egypt. But unless its existing legal institutions are reformed to allow economic growth from the bottom up, the aspirations for a better life that are motivating so many demonstrating in the streets will remain unfulfilled." ("Egypt's Economic Apartheid," WSJ, 02/03/11, A15).
• We sent out some e-mail follow-ups to the CESJ information packages we sent out last week following the Catholic Radio Association reception at the Columbus School of Law at Catholic University of America the evening before the March for Life. Those whom we had not given a copy of Supporting Life (available through the "bookstore" link to your right) were sent a complimentary copy, along with materials describing CESJ's accomplishments. So far we've heard back from two of the recipients — fortunately, the two highest-placed and thus the ones best able to get the word out about Capital Homesteading as a possible Pro-Life economic agenda.
• The relationship between the principals involved in the Harris Neck, Georgia initiative and CESJ and other Just Third Way organizations continues to deepen. Dave Kelly, the Harris Neck "prime mover," has been very active bringing people together and introducing them to Norman Kurland. Plans are afoot to have Norm attend an important gathering at Harris Neck within the next couple of weeks.
• Russell Williams, CESJ's National Field Secretary, has signed the contract for a 13-week radio show on the Just Third Way. CESJ has pledged support for the effort.
• As of this morning, we have had visitors from 51 different countries and 44 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, Germany, and the Philippines. People in Venezuela, South Africa, Poland, the Philippines and Indonesia spent the most average time on the blog. The most popular posting this past week has been "Pure Credit for Student Loans," followed by "Thomas Hobbes on Private Property," "The 'New' Slavery, Part V: Debt Slavery," "The 'New' Slavery, Part III: Wage and Welfare Slavery," and "News from the Network, 4.1."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
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The standard answer at the time — and one that continues to haunt us today in the never-ending quest for "job-creation" during the "jobless recovery" (a.k.a., "The Great Depression III"), is that new jobs will somehow magically appear in the service industries, leisure, research, and white-collar work. In response, Dr. Reddy said (in effect) "Wanna bet?" As he really said, "even there the same revolution is coming." He went on to comment that, "no one [in power] understands what's happening or grasps the extent of what's coming." ("Artificial Intelligence," Business Week, March 8, 1982.)
So, how accurate was Dr. Reddy's prediction?
Pretty accurate, as the figures from the Bureau of Labor Statistics suggest. The number of people employed in production ("manufacturing") in 2008 was 8,973,000, and in 2009 7,654,000. Doing a straight line regression, this gives us the estimated number of people engaged in production in 2010 (actual figures aren't available yet) as 6,335,000, 2011 as a little over 5 million, and 2012 could be as few as 3.7 million.
Of course, 2008 and 2009 were periods of economic recovery, so we should expect the number of jobs to decline even faster, once the economy gets back on an even keel. (Unless there's something drastically wrong with the claim that the "recession" is over . . . What? You think that reasoning is any screwier than the claim that the "recession" is over?)
Anyway, as the U.S. economy continues to implode under the illusion that the economic problems have been "fixed" by bloating the financial services industry, increasing State takeover of the private sector, and assuming a gargantuan debt, it becomes painfully clear that, unless Capital Homesteading is adopted by 2012 at the latest, the U.S. can very quickly find itself locked into an irrecoverable economic downward spiral.
You can't have 400 million people supported by the productive efforts of the 0.92% of the population projected to own direct productive labor by 2012, or the less than 1% of the population who own most of the capital — that is, 98% of the population supported by the other 2% — without social disruption, even revolution on a massive scale. As Benjamin Watkins Leigh pointed out in 1820, "Power and Property can be separated for a time by force or fraud — but divorced, never. For as soon as the pang of separation is felt . . . property will purchase Power, or Power will take over Property."
So what have we been doing to extend ownership of capital to the millions being displaced by advancing technology and cheaper labor in other regions?
• Hernando de Soto has weighed in on the troubles in Egypt. With the rather unimportant caveat (at this point) that his orientation is based on existing accumulations of savings, de Soto pinpoints one of the flaws in what may be civil society's most important institution, the legal structures surrounding private property. Many people in Egypt do not have recognized legal title to what they have in their possession, even if they have built it up from scratch. Getting the proper permits and licenses in less than a decade for even a small business is a Herculean task. Credit, collateral, or anything else involving commerce above the level of barter or the smallest of cash transactions? Forget it. As de Soto concluded his op-ed piece in yesterday's Wall Street Journal, "Leaders and governments may change and more democracy might come to Egypt. But unless its existing legal institutions are reformed to allow economic growth from the bottom up, the aspirations for a better life that are motivating so many demonstrating in the streets will remain unfulfilled." ("Egypt's Economic Apartheid," WSJ, 02/03/11, A15).
• We sent out some e-mail follow-ups to the CESJ information packages we sent out last week following the Catholic Radio Association reception at the Columbus School of Law at Catholic University of America the evening before the March for Life. Those whom we had not given a copy of Supporting Life (available through the "bookstore" link to your right) were sent a complimentary copy, along with materials describing CESJ's accomplishments. So far we've heard back from two of the recipients — fortunately, the two highest-placed and thus the ones best able to get the word out about Capital Homesteading as a possible Pro-Life economic agenda.
• The relationship between the principals involved in the Harris Neck, Georgia initiative and CESJ and other Just Third Way organizations continues to deepen. Dave Kelly, the Harris Neck "prime mover," has been very active bringing people together and introducing them to Norman Kurland. Plans are afoot to have Norm attend an important gathering at Harris Neck within the next couple of weeks.
• Russell Williams, CESJ's National Field Secretary, has signed the contract for a 13-week radio show on the Just Third Way. CESJ has pledged support for the effort.
• As of this morning, we have had visitors from 51 different countries and 44 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, Germany, and the Philippines. People in Venezuela, South Africa, Poland, the Philippines and Indonesia spent the most average time on the blog. The most popular posting this past week has been "Pure Credit for Student Loans," followed by "Thomas Hobbes on Private Property," "The 'New' Slavery, Part V: Debt Slavery," "The 'New' Slavery, Part III: Wage and Welfare Slavery," and "News from the Network, 4.1."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
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Thursday, February 3, 2011
The Problem with Money, Part IV: Say's Law of Markets
In his book, Aristotle for Everybody (available through the Just Third Way "Bookstore" over there to your right), Mortimer Adler inserted a section on "Man the Doer." Boiling it down 'way too much (you really should read it for yourself . . . after you've read How to Read a Book a couple of times, of course), we find that the reason for engaging in economic activity (political economy) is not merely to live, but to live well, that is, to pursue the "good life" by acquiring and developing virtue.
It necessarily follows that, in order to acquire and develop virtue, we need "leisure." Leisure is time spent on the "work of civilization," that is, either working on our own virtue or (as a preliminary step) organizing with others to restructure our institutions so that we can get to work on our own virtue. Since "man is by nature a political animal," if our institutions are flawed, they may inhibit or prevent us from acquiring and developing virtue. This is because, paradoxically, as political animals we normally realize our fullest possible development as individual human beings within a social context — "politics."
Given this understanding of "Man the Doer," it is clear that we must reject the idea of people as mere consumers, contributing nothing and simply indulging insatiable appetites. The idea of "Man the Bottomless Pit" not only contradicts basic economic assumptions such as the theory of marginal utility (as we saw in yesterday's posting), it directly contradicts human nature itself. Of course, if you are one of those natural law fanatics, you've already accepted the fact that economics, a social science, is necessarily rooted in human nature, a reflection of God's Nature, and cannot contradict its own foundation. Thus, common sense as well as objective analysis tells us that people cannot be mere consumers. They must also (as, not coincidentally, Mortimer Adler observed in Aristotle for Everybody) be producers; man is a maker as well as a doer.
The question then becomes how people are to make, that is, produce.
If we listen to the lords of conventional economics (especially Lord Keynes), there is only one way that the great mass of people should or can produce: through the sale of their labor to owners of capital. That is, to produce marketable goods and services and thereby gain a living income, most people must be restricted to the use of labor alone.
Keynes and others have come up with all kinds of rationalizations to justify this rather bizarre (from the point of natural law) assertion, but it always boils down to one thing: the slavery of past savings. That is, the main reason for keeping virtually the whole of the world's population in the condition of dependency that can accurately be described as "wage slavery" is the fixed belief that the only way to finance new capital formation is out of existing accumulations of money savings.
How's that?
Simple. In order to accumulate sufficient money savings to finance the increasingly advanced capital instruments of the modern age you need people whose income from capital is so immense that they can't possibly consume it all and must reinvest it in additional new capital. In fact, according to Keynes, people who actually consume income from capital instead of reinvesting it to finance yet more capital are a drag on the economy. Contradicting Adam Smith, as far as Keynes and his followers are concerned, the purpose of production is not consumption, but the generation of savings by cutting consumption to reinvest in yet more production; the purpose of production is production!
At least, according to Lord Keynes. (And people keep wondering why the Keynesian economy doesn't seem to work no matter how it is "fine tuned.") This explains why Keynes and others reject "Say's Law of Markets," sometimes in terms more than a little tinged with hysteria, when they cannot even state Say's Law with any degree of accuracy, and never manage to connect Say's Law with its chief application in the real bills doctrine.
Oversimplified, Say's Law is that supply generates its own demand, and demand, its own supply. Elaborated a little, as Say explained to Malthus, if supply (production of marketable goods and services) remains unsold, it is because potential purchasers are not themselves producing other marketable goods and services to trade for the unsold productions:
"Wait!" shrieks the Keynesian economist, as well as adherents of any other school of economics based on the British Currency School of finance — and yes, Keynesian economics is, despite the pronouncements of a number of authorities who really should know better, Currency School. "You don't purchase the produce of another with your own produce! You purchase it with money — 'money' being coin and banknotes, sometimes demand deposits that the State creates as a general claim on the wealth of the economy!" In other words, Say's Law is invalid because its critics use a different definition of money than that used by Say.
That's not exactly playing fair. As G. K. Chesterton noted, "It is no good to tell an atheist that he is an atheist; or to charge a denier of immortality with the infamy of denying it; or to imagine that one can force an opponent to admit he is wrong, by proving that he is wrong on somebody else's principles, but not on his own. After the great example of St. Thomas, the principle stands, or ought always to have stood established; that we must either not argue with a man at all, or we must argue on his grounds and not ours." (The Dumb Ox, p. 95.)
How did Say define money?
Consistent with Say's Law, then, people are not only consumers, they are necessarily producers. As far as Say was concerned, no one can consume unless he first produces something. Nor is people's productive potential limited exclusively to labor, but (as Say noted) to capital and land as well. The question becomes how ordinary people without existing accumulations of savings are supposed to acquire (legitimate) ownership of capital and land: that which binary economics groups together as "capital," the non-human factor of production.
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It necessarily follows that, in order to acquire and develop virtue, we need "leisure." Leisure is time spent on the "work of civilization," that is, either working on our own virtue or (as a preliminary step) organizing with others to restructure our institutions so that we can get to work on our own virtue. Since "man is by nature a political animal," if our institutions are flawed, they may inhibit or prevent us from acquiring and developing virtue. This is because, paradoxically, as political animals we normally realize our fullest possible development as individual human beings within a social context — "politics."
Given this understanding of "Man the Doer," it is clear that we must reject the idea of people as mere consumers, contributing nothing and simply indulging insatiable appetites. The idea of "Man the Bottomless Pit" not only contradicts basic economic assumptions such as the theory of marginal utility (as we saw in yesterday's posting), it directly contradicts human nature itself. Of course, if you are one of those natural law fanatics, you've already accepted the fact that economics, a social science, is necessarily rooted in human nature, a reflection of God's Nature, and cannot contradict its own foundation. Thus, common sense as well as objective analysis tells us that people cannot be mere consumers. They must also (as, not coincidentally, Mortimer Adler observed in Aristotle for Everybody) be producers; man is a maker as well as a doer.
The question then becomes how people are to make, that is, produce.
If we listen to the lords of conventional economics (especially Lord Keynes), there is only one way that the great mass of people should or can produce: through the sale of their labor to owners of capital. That is, to produce marketable goods and services and thereby gain a living income, most people must be restricted to the use of labor alone.
Keynes and others have come up with all kinds of rationalizations to justify this rather bizarre (from the point of natural law) assertion, but it always boils down to one thing: the slavery of past savings. That is, the main reason for keeping virtually the whole of the world's population in the condition of dependency that can accurately be described as "wage slavery" is the fixed belief that the only way to finance new capital formation is out of existing accumulations of money savings.
How's that?
Simple. In order to accumulate sufficient money savings to finance the increasingly advanced capital instruments of the modern age you need people whose income from capital is so immense that they can't possibly consume it all and must reinvest it in additional new capital. In fact, according to Keynes, people who actually consume income from capital instead of reinvesting it to finance yet more capital are a drag on the economy. Contradicting Adam Smith, as far as Keynes and his followers are concerned, the purpose of production is not consumption, but the generation of savings by cutting consumption to reinvest in yet more production; the purpose of production is production!
At least, according to Lord Keynes. (And people keep wondering why the Keynesian economy doesn't seem to work no matter how it is "fine tuned.") This explains why Keynes and others reject "Say's Law of Markets," sometimes in terms more than a little tinged with hysteria, when they cannot even state Say's Law with any degree of accuracy, and never manage to connect Say's Law with its chief application in the real bills doctrine.
Oversimplified, Say's Law is that supply generates its own demand, and demand, its own supply. Elaborated a little, as Say explained to Malthus, if supply (production of marketable goods and services) remains unsold, it is because potential purchasers are not themselves producing other marketable goods and services to trade for the unsold productions:
As no one can purchase the produce of another except with his own produce, as the amount for which we can buy is equal to that which we can produce, the more we can produce the more we can purchase. From whence proceeds this other conclusion, which you refuse to admit — That if certain commodities do not sell, it is because others are not produced, and that it is the raising produce alone which opens a market for the sale of produce. (Jean-Baptiste Say, "Letter 1," Letters to Mr. Malthus on Several Subjects of Political Economy, 1821)
"Wait!" shrieks the Keynesian economist, as well as adherents of any other school of economics based on the British Currency School of finance — and yes, Keynesian economics is, despite the pronouncements of a number of authorities who really should know better, Currency School. "You don't purchase the produce of another with your own produce! You purchase it with money — 'money' being coin and banknotes, sometimes demand deposits that the State creates as a general claim on the wealth of the economy!" In other words, Say's Law is invalid because its critics use a different definition of money than that used by Say.
That's not exactly playing fair. As G. K. Chesterton noted, "It is no good to tell an atheist that he is an atheist; or to charge a denier of immortality with the infamy of denying it; or to imagine that one can force an opponent to admit he is wrong, by proving that he is wrong on somebody else's principles, but not on his own. After the great example of St. Thomas, the principle stands, or ought always to have stood established; that we must either not argue with a man at all, or we must argue on his grounds and not ours." (The Dumb Ox, p. 95.)
How did Say define money?
All those who, since Adam Smith, have turned their attention to Political Economy, agree that in reality we do not buy articles of consumption with money, the circulating medium with which we pay for them. We must in the first instance have bought this money itself by the sale of our produce.In other words, money is anything that can be used in settlement of a debt. A particular piece of money, whatever form it takes, is simply the symbol of the present value of marketable goods and services with which the promise conveyed by the "money" is ultimately redeemed.
To a proprietor of a mine, the silver money is a produce with which he buys what he has occasion for. To all those through whose hands this silver afterwards passes, it is only the price of the produce which they themselves have raised by means of their property in land, their capitals, or their industry. In selling them they in the first place exchange them for money, and afterwards they exchange the money for articles of consumption. It is therefore really and absolutely with their produce that they make their purchases: therefore it is impossible for them to purchase any articles whatever, to a greater amount than those they have produced, either by themselves or through the means of their capital or their land. (Letters to Malthus, op. cit.)
Consistent with Say's Law, then, people are not only consumers, they are necessarily producers. As far as Say was concerned, no one can consume unless he first produces something. Nor is people's productive potential limited exclusively to labor, but (as Say noted) to capital and land as well. The question becomes how ordinary people without existing accumulations of savings are supposed to acquire (legitimate) ownership of capital and land: that which binary economics groups together as "capital," the non-human factor of production.
#30#
Wednesday, February 2, 2011
The Problem with Money, Part III: "Post Scarcity" Economics
Yesterday we summarized the claim in conventional economics that humanity is nothing more than a consuming machine that swallows everything in its path, leaving nothing behind, a veritable "black hole" of consumption, from which no light of hope can escape. Is this, however, a correct or believable analysis, even given the assumptions of conventional economics?
From the perspective of binary economics there are so many problems with the standard scarcity argument that it's difficult to know where to begin. First, of course, economic scarcity says absolutely nothing about the possibilities inherent in what R. Buckminster Fuller called "ephemeralization," that is, the tendency of human beings to "do more with less."
Economic scarcity is also, in accounting terms, a "balance sheet account." That is, it makes a statement about the amount of available resources at a specific point in time. It says nothing whatsoever about how much there was a moment ago, or will be available in the next moment. Economic scarcity is a "static" analytical statement . . . yet economics is a dynamic science — an "income statement" for an economy, relating the production and allocation of economically scarce resources over time.
This does not make economic scarcity any less valid — economic scarcity is true, and nothing can change that — but it can and must change how we think about "scarcity." We must, in fact, advance beyond the presumed constraints imposed by dependency of a dynamic science on a static analysis. This is why binary economics is construed as a "post-scarcity" school of economic thought. It's not that binary economics claims to overcome economic scarcity. That is impossible, for economic scarcity is a simple statement of Aristotelian logic: a thing cannot both "be" and "not be" at the same time, or (in economic terms) you can't use the same chunk of resources for two different things at the same time.
The other big problem with how conventional economists understand scarcity is the "humanity-as-a-giant-consuming-black-hole" assumption; that human wants can never, never, never, never, never be satisfied. Really? What about the theory of marginal utility, a pillar of modern economics?
To quote from the Wikipedia, "In economics, the marginal utility of a good or service is the utility gained (or lost) from an increase (or decrease) in the consumption of that good or service. Economists sometimes speak of a law of diminishing marginal utility, meaning that there are diminishing returns in consumption, so that the first unit of consumption of a good or service yields more utility than the second and subsequent units."
Oh. You wanted it in English. Okay.
The theory of marginal utility as it relates to consumption is that, as you increase your consumption of a good or service, your satisfaction or the utility you derive from consuming each additional amount of that good or service tends to decline until you reach satiation/satisfaction and you stop consuming.
D'oh.
According to marginal utility, then (which most conventional economists accept), the idea that human beings are unstoppable consuming machines (which most conventional economists also accept) is completely invalid. While some binary economists might reject the theory of marginal utility, given the usual understanding of scarcity found in conventional economics, marginal utility certainly justifies the description of binary economics as a "post-scarcity" paradigm.
So. Binary economics rejects the idea that humanity is inherently an unstoppable consuming machine. That still doesn't tell us how to overcome the presumed constraints imposed by economic scarcity . . . or does it? We'll look at that question in the next posting in this series.
#30#
From the perspective of binary economics there are so many problems with the standard scarcity argument that it's difficult to know where to begin. First, of course, economic scarcity says absolutely nothing about the possibilities inherent in what R. Buckminster Fuller called "ephemeralization," that is, the tendency of human beings to "do more with less."
Economic scarcity is also, in accounting terms, a "balance sheet account." That is, it makes a statement about the amount of available resources at a specific point in time. It says nothing whatsoever about how much there was a moment ago, or will be available in the next moment. Economic scarcity is a "static" analytical statement . . . yet economics is a dynamic science — an "income statement" for an economy, relating the production and allocation of economically scarce resources over time.
This does not make economic scarcity any less valid — economic scarcity is true, and nothing can change that — but it can and must change how we think about "scarcity." We must, in fact, advance beyond the presumed constraints imposed by dependency of a dynamic science on a static analysis. This is why binary economics is construed as a "post-scarcity" school of economic thought. It's not that binary economics claims to overcome economic scarcity. That is impossible, for economic scarcity is a simple statement of Aristotelian logic: a thing cannot both "be" and "not be" at the same time, or (in economic terms) you can't use the same chunk of resources for two different things at the same time.
The other big problem with how conventional economists understand scarcity is the "humanity-as-a-giant-consuming-black-hole" assumption; that human wants can never, never, never, never, never be satisfied. Really? What about the theory of marginal utility, a pillar of modern economics?
To quote from the Wikipedia, "In economics, the marginal utility of a good or service is the utility gained (or lost) from an increase (or decrease) in the consumption of that good or service. Economists sometimes speak of a law of diminishing marginal utility, meaning that there are diminishing returns in consumption, so that the first unit of consumption of a good or service yields more utility than the second and subsequent units."
Oh. You wanted it in English. Okay.
The theory of marginal utility as it relates to consumption is that, as you increase your consumption of a good or service, your satisfaction or the utility you derive from consuming each additional amount of that good or service tends to decline until you reach satiation/satisfaction and you stop consuming.
D'oh.
According to marginal utility, then (which most conventional economists accept), the idea that human beings are unstoppable consuming machines (which most conventional economists also accept) is completely invalid. While some binary economists might reject the theory of marginal utility, given the usual understanding of scarcity found in conventional economics, marginal utility certainly justifies the description of binary economics as a "post-scarcity" paradigm.
So. Binary economics rejects the idea that humanity is inherently an unstoppable consuming machine. That still doesn't tell us how to overcome the presumed constraints imposed by economic scarcity . . . or does it? We'll look at that question in the next posting in this series.
#30#
Tuesday, February 1, 2011
The Problem with Money, Part II: The Black Hole of Consumption
We ended yesterday's learned discourse with the question why, if we all have the derived right to create money — "derived" because it comes from the exercise of two natural rights, that of private property and liberty (freedom of association/contract) — how come we never seem to have enough? Or any at all, for that matter?
Conventional economics claims to have at least part of the answer. Why do we never seem to have enough money? Because human beings are a bunch of greedy pigs whose wants can never be satisfied. Never. Each human being is a consuming machine who lives only to suck away resources from other human beings in a constant struggle for supremacy and lust for ultimate power.
This is a slightly exaggerated version of what you'll read in many economics textbooks when you come to the subject of "scarcity." It's also why we describe binary economics as a "post scarcity" school of thought. Is it because binary theory holds that economic scarcity can be overcome? In strict terms, absolutely not. "Economic scarcity," however, has a very special meaning on which, unfortunately, many economists tend to fudge, confusing it with Malthusian scarcity. This is a theory concerning which, as Schumpeter remarked "Professor [Edwin] Cannan [1861-1935] did not exaggerate when he wrote that the Essay [Malthus's Essay on Population, 1798] 'falls to the ground as an argument, and remains only a chaos of facts collected to illustrate the effect of laws which do not exist.'" (Joseph A. Schumpeter, History of Economic Analysis. New York: Oxford University Press, 1954, 580.) As Schumpeter explained,
From this conventional economists assume as an established fact that, "therefore," there will always be an insufficiency of everything, because — given the presumed necessary tradeoff between different goods and services within the limitations imposed by "scarce" resources — nobody can have an infinite amount of everything.
There are "one or two" problems with this analysis, as we will demonstrate tomorrow. Assuming we make our way through yet another Storm of the Century.
#30#
Conventional economics claims to have at least part of the answer. Why do we never seem to have enough money? Because human beings are a bunch of greedy pigs whose wants can never be satisfied. Never. Each human being is a consuming machine who lives only to suck away resources from other human beings in a constant struggle for supremacy and lust for ultimate power.
This is a slightly exaggerated version of what you'll read in many economics textbooks when you come to the subject of "scarcity." It's also why we describe binary economics as a "post scarcity" school of thought. Is it because binary theory holds that economic scarcity can be overcome? In strict terms, absolutely not. "Economic scarcity," however, has a very special meaning on which, unfortunately, many economists tend to fudge, confusing it with Malthusian scarcity. This is a theory concerning which, as Schumpeter remarked "Professor [Edwin] Cannan [1861-1935] did not exaggerate when he wrote that the Essay [Malthus's Essay on Population, 1798] 'falls to the ground as an argument, and remains only a chaos of facts collected to illustrate the effect of laws which do not exist.'" (Joseph A. Schumpeter, History of Economic Analysis. New York: Oxford University Press, 1954, 580.) As Schumpeter explained,
As presented in the first edition, it [i.e., Malthus's argument] clearly was intended to mean that population was actually and inevitably increasing faster than subsistence and that this was the reason for the misery observed. The geometrical and arithmetical ratios of these increases, to which Malthus like earlier writers seems to have attached considerable importance, as well as his other attempts at mathematical precision, are nothing but faulty expressions of this view which can be passed by here with the remark that there is of course no point whatever in trying to formulate independent "laws" for the behavior of two interdependent quantities. The performance as a whole is deplorable in technique and little short of foolish in substance. (Ibid., 579.)So how does "economic scarcity" differ from the human wasteland that people seem to derive from Malthusian doctrine? Simple. All economic scarcity says is that "X" amount of everything exists at any single point in time, and that you can't use the same quantity of X to make product A and, at the same time, make product B. This is often put in terms of "guns or butter," i.e., a society can use its existing resources to produce military goods or consumer goods, and there is a necessary tradeoff between the two.
From this conventional economists assume as an established fact that, "therefore," there will always be an insufficiency of everything, because — given the presumed necessary tradeoff between different goods and services within the limitations imposed by "scarce" resources — nobody can have an infinite amount of everything.
There are "one or two" problems with this analysis, as we will demonstrate tomorrow. Assuming we make our way through yet another Storm of the Century.
#30#
Monday, January 31, 2011
The Problem with Money, Part I: What IS that Stuff?
No, we mean the other problem. What's that? Oh, sorry. Okay, the other, other problem with money. The first problem, of course, is that those of us who need it can't seem to get it, and the second problem is that most of us lack access to the means of getting it — a different, yet related problem. The other, other problem, then, is that few people really know what the heck "money" is. Oddly enough, it's not all that difficult, once you shed the chains binding you to the slavery of past savings and understand a few basic principles . . . such as life, liberty, property, and the pursuit of happiness.
There are several reasons for this. Primarily (as we noted in last week's News from the Network) most people simply don't bother to think. They just take some authority's word for something. Unfortunately, while that is fine for dogs and children (up to a point), it wreaks havoc when it comes to a tool as socially important as money.
Thus, most people simply copy the "experts" and use the "standard" definition of money within the paradigm established by the British Currency School of finance. That is, "money" consists of coin, banknotes, demand deposits (checking accounts), and certain time deposits (savings accounts). The experts have decided that the State decides of what money consists and under what circumstances . . . and reserves the right to change that definition when it feels like doing it.
Case in point: Benjamin Bernanke's decision to drop "M3" from the "official" definition of money, leaving only "M1" and "M2." (When I was in college, I vaguely recall the "Ms" going up to something like 14 or 15 in an effort to fit definitions to economic and financial reality.) In the opening passages of the first volume of his Treatise on Money (1930), Keynes said that the State has this power (i.e., to change definitions — substantial reality — at will and to interfere in contracts "involving money"), therefore, the State has that power . . . even though that means, effectively, that private property and freedom of association/contract are now, to all intents and purposes, mere noises.
Picky, picky, picky.
What's wrong with that? Doesn't the State create money?
No — at least, not legitimately. The State's role with respect to money is to set the standard of the currency and to enforce contracts in the event of a dispute. Setting the standard is no more "creating money" than when the State decides to use inches and feet is "creating length." There's a very good reason why the Constitution lists the federal government's power to set the standard and regulate the currency under "weights and measures." It was supposed to ensure that nobody would ever think anything as silly as the State creates money, any more than it creates length or weight.
So who "creates money"? Assuming that we're engaged in productive activity, the answer is — we do. That's right. Us'ns. The Concerned Ordinary Citizens Of America, the COCOAs. You see, "money" is not (as some have claimed) "instant purchasing power." Nor is "money" necessarily the same as "currency" (coin and banknotes) or "currency substitutes" (demand deposits). No, money is anything — anything — that can be used in settlement of a debt, that is, used to convey a private property right from one person or persons to another person or persons in fulfillment of a contract. In a very real sense, all money is a contract, just as all contracts are money.
To enter into a contract, that is, to create money, you need to meet a few conditions. First, you have to be competent to enter into a contract. You can't be unconscious, crazy or a convict. Contracts with minor children are voidable, while contracts with those judged incompetent are void, but we don't need to get into the technicalities. All we need to know is that you are presumed competent.
Second, you have to have a right to dispose of that for which you are contracting to deliver. That means, ordinarily, that you have to own it. If you are entering into a labor contract, you have to own your labor. If you are purchasing something in a store, you have to own whatever you tender to the shopkeeper. If you are selling something (and all these things are "contracts") you have to own the thing you're selling.
Third, there has to be "consideration" that passes between the two parties to a contract. That is, genuine value has to be exchanged.
Fourth, it has to be voluntary. A thief who says, "Give me your money or I'll bash your head in" is not making a contract with you, although most people would certainly agree that their own lives have value. It's just not voluntary.
Thus, all contracts are money, and all money is a contract. (Okay, we shouldn't have put it that way; it makes it sound as if we've proved our case. No, we haven't — but there's enough information there that you can figure it out for yourself.)
The bottom line is that "money" is not just coin, banknotes, checking accounts and selected savings accounts. No, money is anything that is used to convey a private property right in or to anything, that is, to settle a debt. As long as the matter of the contract is legal, the State has no say-so as to what form that settlement must take. Contrary to Keynes's assertion that the State has the power to change contractual provisions at will and define "money" any way it likes, the State does not, and could not possibly have that power and preserve the illusion that people's natural rights are being in any way respected.
That leaves us with the question, If (as you say) each and every one of us has the power to create money, how come I don't have any? We'll start to look at the answer to that tomorrow.
#30#
There are several reasons for this. Primarily (as we noted in last week's News from the Network) most people simply don't bother to think. They just take some authority's word for something. Unfortunately, while that is fine for dogs and children (up to a point), it wreaks havoc when it comes to a tool as socially important as money.
Thus, most people simply copy the "experts" and use the "standard" definition of money within the paradigm established by the British Currency School of finance. That is, "money" consists of coin, banknotes, demand deposits (checking accounts), and certain time deposits (savings accounts). The experts have decided that the State decides of what money consists and under what circumstances . . . and reserves the right to change that definition when it feels like doing it.
Case in point: Benjamin Bernanke's decision to drop "M3" from the "official" definition of money, leaving only "M1" and "M2." (When I was in college, I vaguely recall the "Ms" going up to something like 14 or 15 in an effort to fit definitions to economic and financial reality.) In the opening passages of the first volume of his Treatise on Money (1930), Keynes said that the State has this power (i.e., to change definitions — substantial reality — at will and to interfere in contracts "involving money"), therefore, the State has that power . . . even though that means, effectively, that private property and freedom of association/contract are now, to all intents and purposes, mere noises.
Picky, picky, picky.
What's wrong with that? Doesn't the State create money?
No — at least, not legitimately. The State's role with respect to money is to set the standard of the currency and to enforce contracts in the event of a dispute. Setting the standard is no more "creating money" than when the State decides to use inches and feet is "creating length." There's a very good reason why the Constitution lists the federal government's power to set the standard and regulate the currency under "weights and measures." It was supposed to ensure that nobody would ever think anything as silly as the State creates money, any more than it creates length or weight.
So who "creates money"? Assuming that we're engaged in productive activity, the answer is — we do. That's right. Us'ns. The Concerned Ordinary Citizens Of America, the COCOAs. You see, "money" is not (as some have claimed) "instant purchasing power." Nor is "money" necessarily the same as "currency" (coin and banknotes) or "currency substitutes" (demand deposits). No, money is anything — anything — that can be used in settlement of a debt, that is, used to convey a private property right from one person or persons to another person or persons in fulfillment of a contract. In a very real sense, all money is a contract, just as all contracts are money.
To enter into a contract, that is, to create money, you need to meet a few conditions. First, you have to be competent to enter into a contract. You can't be unconscious, crazy or a convict. Contracts with minor children are voidable, while contracts with those judged incompetent are void, but we don't need to get into the technicalities. All we need to know is that you are presumed competent.
Second, you have to have a right to dispose of that for which you are contracting to deliver. That means, ordinarily, that you have to own it. If you are entering into a labor contract, you have to own your labor. If you are purchasing something in a store, you have to own whatever you tender to the shopkeeper. If you are selling something (and all these things are "contracts") you have to own the thing you're selling.
Third, there has to be "consideration" that passes between the two parties to a contract. That is, genuine value has to be exchanged.
Fourth, it has to be voluntary. A thief who says, "Give me your money or I'll bash your head in" is not making a contract with you, although most people would certainly agree that their own lives have value. It's just not voluntary.
Thus, all contracts are money, and all money is a contract. (Okay, we shouldn't have put it that way; it makes it sound as if we've proved our case. No, we haven't — but there's enough information there that you can figure it out for yourself.)
The bottom line is that "money" is not just coin, banknotes, checking accounts and selected savings accounts. No, money is anything that is used to convey a private property right in or to anything, that is, to settle a debt. As long as the matter of the contract is legal, the State has no say-so as to what form that settlement must take. Contrary to Keynes's assertion that the State has the power to change contractual provisions at will and define "money" any way it likes, the State does not, and could not possibly have that power and preserve the illusion that people's natural rights are being in any way respected.
That leaves us with the question, If (as you say) each and every one of us has the power to create money, how come I don't have any? We'll start to look at the answer to that tomorrow.
#30#
Friday, January 28, 2011
News from the Network, Vol. 4, No. 4
Recently, as part of our informal "Mortimer Adler Revival," we started rereading How to Read a Book, one of Dr. Adler's earliest bestsellers. One of the points that the "Great Books" philosopher stressed early on is a lesson he learned the hard way: that picking up a book and gliding your eyes over the words — "reading" — doesn't mean that you've actually read the book; in fact, you cannot (in Adler's opinion) be said to have read a book until you've been through it at least three times. Even then, if you haven't read the book in the right way, you still cannot be said actually to have read it.
As a case in point, Adler highlighted the example of academics, even highly placed and influential academics, who — having opened a book once and run their eyes over the pages — are convinced they've read it. In this context, we recall an anecdote related by C. S. Lewis about his acquisition of some books from the library of a renowned scholar. Looking over the first few pages of one of the volumes, he saw that there was heavy annotation. He then settled in to enjoy, for him, the high treat of "conversing" with the scholar by reading the comments in a book he himself had read many times.
Lewis then made a startling discovery. The first few pages of the book contained many notes. The rest of the first chapter had fewer. The second chapter had even fewer, and the third chapter none at all. From the fourth chapter on, the book did not even appear to have been opened. Not surprisingly, Lewis concluded that the noted scholar had approached the book with his mind already made up. He had taken note of things that supported his preconceptions, decided he already knew what the book was about, and discarded it without getting into what Lewis regarded as the substance of the author's work. The other books that Lewis had obtained followed the same pattern.
Why raise this? Two reasons. One, academia is a "primary target" for the Just Third Way. Many of the problems we see around us are rooted in the attitudes and beliefs of academics who have transmitted their attitudes and beliefs, right or wrong, to our (alleged) leaders, who thereby surrender the difficult task of actually thinking, locking the system into whatever weird and wonderful paradigm got the academics their doctorates. As Aubrey de Selincourt quoted one (genuine) scholar, "In a field as well-ploughed as history, an original theory is almost guaranteed to be a perverse theory." — an observation we can apply to economics.
(Anent of that, we've found at least three versions of the quote about people preferring to die rather than think: "Ten percent of the people think; ten percent of the people think they think, and the remaining eighty percent would rather die than think," Mark Twain; "Two percent of the people think, three percent of the people think they think, and the other ninety-five percent would rather die than think," George Bernard Shaw; "Most people would rather die than think, in fact, they do," Bertrand Russell. Take your pick.)
The second reason is that, however often we've pointed out that the three mainstream schools of economic thought, the Keynesian, the Monetarist/Chicago, and the Austrian, all make the same erroneous assumption about money and credit (and thus finance), some people seem to think we're "picking on" the Keynesian "liberals," and ignoring the Keynesian, Monetarist/Chicago, and Austrian "conservatives" — as if there was any substantial disagreement between them on the basic principles, namely, who is sovereign in money matters, the State, or actual, flesh-and-blood people?
Let's be honest. There is no evidence that any of the powers-that-be, liberal or conservative, have a framework that will lead to a viable and sustainable solution. It's just more obvious with the liberals because they seem to have the upper hand at the moment, and thus the ability to have their mistakes affect more people's lives adversely. The question that remains unanswered, even unexamined is, "Who is in charge of the economy?"
Regardless which side of the political, even economic aisle anyone is on, the basic assumption that has determined the course of the investigation and thus the character of any proposed solutions, is that the State is in charge. The question then devolves not into whether the State should be in charge of the economy, but to what degree, e.g., "the government needs to spend more," v. "the government needs to spend less."
None of this takes into account the possibilities that the government should 1) spend only what it needs to spend to carry out its unique role, and 2) must live within its means if the natural rights of the citizens to life, liberty, property, and the pursuit of happiness are to have any effective meaning.
The problem the powers-that-be should be investigating, then, is not how much money the government should be creating through its misuse of the central bank. Rather, they should be asking whether the government should be creating money at all, or be limited by the internal controls of the system to what it can collect in taxes or borrow from existing accumulations of savings in the short term, not raise by monetizing an ever-burgeoning deficit.
From there, they would necessarily examine whether the government should create money by means of the quasi-legal "open market operations," or whether the Federal Reserve should fill the role for which it was designed. As stated in § 1 of the original 1913 Act, the Federal Reserve was to provide an adequate, "elastic" and stable currency for the private sector by rediscounting bills of exchange discounted by member banks, supplemented with limited open market operations in bills of exchange issued by private businesses and non-member banks. The Federal Reserve was only empowered to deal in government securities of any kind in order to replace the National Bank Notes backed by government debt, with Federal Reserve Notes backed by private sector hard assets.
We submit, therefore, that one possible solution that the powers-that-be should be investigating is "Capital Homesteading," a proposal based on the work of Louis O. Kelso and Mortimer J. Adler, and explained in their two collaborations, The Capitalist Manifesto (1958) and The New Capitalists (1961), which in turn expanded on the work of Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, and presented, in relevant part, in his 1935 counter-Keynesian examination of the financial system, The Formation of Capital.
So, what are we doing to try and bring the potential inherent in the Just Third Way to the attention of the powers-that-be?
• On Sunday evening Mr. Chris O'Connor, a CESJ volunteer, took time out of his job search to accompany Michael D. Greaney, CESJ's Director of Research, to a reception hosted by the Catholic Radio Association at the Columbus School of Law on the campus of the Catholic University of America, to which CESJ representatives had been invited by Mr. Steve Gojdesik, president of the CRA. The reception was enjoyable both as a social event and as a way of connecting with a number of important people in the Pro-Life movement and the Catholic media. A number of fliers were passed out describing Norman Kurland as the chief spokesman for the Just Third Way as applied in CESJ's proposed "Capital Homestead Act." One Pro-Life "prime mover" expressed interest in discussing a special printing of Michael D. Greaney's book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010), and gave CESJ some leads to others whom she thought should be reading the book.
• Following up on the CRA reception, packages were sent out to a number of people with whom we'd connected. The packages contained a copy of Supporting Life (not wanting to load people down, we carried a very limited number to the reception), along with material describing other publications and CESJ as an organization, notably CESJ's "accomplishments brochure."
• If you are a "media figure" — you don't have to be Catholic — send an e-mail to publications [at] cesj [dot] org, and we will send you a .pdf of the text of Supporting Life, and some of the other materials distributed at the reception and later included in the packages sent out.
• Also on Sunday, Norman and Marie Kurland, along with Dawn and Rowland Brohawn attended a lecture by Wilson Moran at the Smithsonian Anacostia Community Museum, accompanied by a documentary relating the efforts of Lorenzo Dow Turner to trace the origins of an obscure song once common among the Gullah communities in Georgia and the Carolinas. Mr. Moran is the grandson of one of the last people to learn the song, which was a ritual of mourning for the dead. Preserving the unique Gullah culture is one of the goals of the Harris Neck initiative, the prime movers of which have been investigating Capital Homesteading as a way of financing the redevelopment once the land is returned to its rightful owners.
• Norman Kurland traveled to Connecticut on Monday to meet with figures in local politics in Hartford as well as in the state university system. Norm reported that the meetings went well, and the role (and responsibility) of academia in causing many of the problems we face was highlighted.
• A letter to the Peter G. Peterson Foundation in response to the PGPF's initiative to surface possible solutions to the debt crisis that recommended they look at Capital Homesteading among the other alternatives received a polite "thank you" in response.
• Not a Just Third Way news item, but interesting in a twisted way is the announcement by the United States Justice Department that they are investigating various cost-cutting alternatives, among which is the idea of shortening prison sentences.
• As of this morning, we have had visitors from 55 different countries and 43 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, Germany, and Brazil. People in Venezuela, South Africa, Poland, Indonesia and the United States spent the most average time on the blog. The most popular posting this past week has been "News from the Network III.52," followed by "Pure Credit for Student Loans," "The 'New' Slavery, Part V: Debt Slavery," "Thomas Hobbes on Private Property," and "The 'New' Slavery, Part III: Wage and Welfare Slavery."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
As a case in point, Adler highlighted the example of academics, even highly placed and influential academics, who — having opened a book once and run their eyes over the pages — are convinced they've read it. In this context, we recall an anecdote related by C. S. Lewis about his acquisition of some books from the library of a renowned scholar. Looking over the first few pages of one of the volumes, he saw that there was heavy annotation. He then settled in to enjoy, for him, the high treat of "conversing" with the scholar by reading the comments in a book he himself had read many times.
Lewis then made a startling discovery. The first few pages of the book contained many notes. The rest of the first chapter had fewer. The second chapter had even fewer, and the third chapter none at all. From the fourth chapter on, the book did not even appear to have been opened. Not surprisingly, Lewis concluded that the noted scholar had approached the book with his mind already made up. He had taken note of things that supported his preconceptions, decided he already knew what the book was about, and discarded it without getting into what Lewis regarded as the substance of the author's work. The other books that Lewis had obtained followed the same pattern.
Why raise this? Two reasons. One, academia is a "primary target" for the Just Third Way. Many of the problems we see around us are rooted in the attitudes and beliefs of academics who have transmitted their attitudes and beliefs, right or wrong, to our (alleged) leaders, who thereby surrender the difficult task of actually thinking, locking the system into whatever weird and wonderful paradigm got the academics their doctorates. As Aubrey de Selincourt quoted one (genuine) scholar, "In a field as well-ploughed as history, an original theory is almost guaranteed to be a perverse theory." — an observation we can apply to economics.
(Anent of that, we've found at least three versions of the quote about people preferring to die rather than think: "Ten percent of the people think; ten percent of the people think they think, and the remaining eighty percent would rather die than think," Mark Twain; "Two percent of the people think, three percent of the people think they think, and the other ninety-five percent would rather die than think," George Bernard Shaw; "Most people would rather die than think, in fact, they do," Bertrand Russell. Take your pick.)
The second reason is that, however often we've pointed out that the three mainstream schools of economic thought, the Keynesian, the Monetarist/Chicago, and the Austrian, all make the same erroneous assumption about money and credit (and thus finance), some people seem to think we're "picking on" the Keynesian "liberals," and ignoring the Keynesian, Monetarist/Chicago, and Austrian "conservatives" — as if there was any substantial disagreement between them on the basic principles, namely, who is sovereign in money matters, the State, or actual, flesh-and-blood people?
Let's be honest. There is no evidence that any of the powers-that-be, liberal or conservative, have a framework that will lead to a viable and sustainable solution. It's just more obvious with the liberals because they seem to have the upper hand at the moment, and thus the ability to have their mistakes affect more people's lives adversely. The question that remains unanswered, even unexamined is, "Who is in charge of the economy?"
Regardless which side of the political, even economic aisle anyone is on, the basic assumption that has determined the course of the investigation and thus the character of any proposed solutions, is that the State is in charge. The question then devolves not into whether the State should be in charge of the economy, but to what degree, e.g., "the government needs to spend more," v. "the government needs to spend less."
None of this takes into account the possibilities that the government should 1) spend only what it needs to spend to carry out its unique role, and 2) must live within its means if the natural rights of the citizens to life, liberty, property, and the pursuit of happiness are to have any effective meaning.
The problem the powers-that-be should be investigating, then, is not how much money the government should be creating through its misuse of the central bank. Rather, they should be asking whether the government should be creating money at all, or be limited by the internal controls of the system to what it can collect in taxes or borrow from existing accumulations of savings in the short term, not raise by monetizing an ever-burgeoning deficit.
From there, they would necessarily examine whether the government should create money by means of the quasi-legal "open market operations," or whether the Federal Reserve should fill the role for which it was designed. As stated in § 1 of the original 1913 Act, the Federal Reserve was to provide an adequate, "elastic" and stable currency for the private sector by rediscounting bills of exchange discounted by member banks, supplemented with limited open market operations in bills of exchange issued by private businesses and non-member banks. The Federal Reserve was only empowered to deal in government securities of any kind in order to replace the National Bank Notes backed by government debt, with Federal Reserve Notes backed by private sector hard assets.
We submit, therefore, that one possible solution that the powers-that-be should be investigating is "Capital Homesteading," a proposal based on the work of Louis O. Kelso and Mortimer J. Adler, and explained in their two collaborations, The Capitalist Manifesto (1958) and The New Capitalists (1961), which in turn expanded on the work of Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952, and presented, in relevant part, in his 1935 counter-Keynesian examination of the financial system, The Formation of Capital.
So, what are we doing to try and bring the potential inherent in the Just Third Way to the attention of the powers-that-be?
• On Sunday evening Mr. Chris O'Connor, a CESJ volunteer, took time out of his job search to accompany Michael D. Greaney, CESJ's Director of Research, to a reception hosted by the Catholic Radio Association at the Columbus School of Law on the campus of the Catholic University of America, to which CESJ representatives had been invited by Mr. Steve Gojdesik, president of the CRA. The reception was enjoyable both as a social event and as a way of connecting with a number of important people in the Pro-Life movement and the Catholic media. A number of fliers were passed out describing Norman Kurland as the chief spokesman for the Just Third Way as applied in CESJ's proposed "Capital Homestead Act." One Pro-Life "prime mover" expressed interest in discussing a special printing of Michael D. Greaney's book, Supporting Life: The Case for a Pro-Life Economic Agenda (2010), and gave CESJ some leads to others whom she thought should be reading the book.
• Following up on the CRA reception, packages were sent out to a number of people with whom we'd connected. The packages contained a copy of Supporting Life (not wanting to load people down, we carried a very limited number to the reception), along with material describing other publications and CESJ as an organization, notably CESJ's "accomplishments brochure."
• If you are a "media figure" — you don't have to be Catholic — send an e-mail to publications [at] cesj [dot] org, and we will send you a .pdf of the text of Supporting Life, and some of the other materials distributed at the reception and later included in the packages sent out.
• Also on Sunday, Norman and Marie Kurland, along with Dawn and Rowland Brohawn attended a lecture by Wilson Moran at the Smithsonian Anacostia Community Museum, accompanied by a documentary relating the efforts of Lorenzo Dow Turner to trace the origins of an obscure song once common among the Gullah communities in Georgia and the Carolinas. Mr. Moran is the grandson of one of the last people to learn the song, which was a ritual of mourning for the dead. Preserving the unique Gullah culture is one of the goals of the Harris Neck initiative, the prime movers of which have been investigating Capital Homesteading as a way of financing the redevelopment once the land is returned to its rightful owners.
• Norman Kurland traveled to Connecticut on Monday to meet with figures in local politics in Hartford as well as in the state university system. Norm reported that the meetings went well, and the role (and responsibility) of academia in causing many of the problems we face was highlighted.
• A letter to the Peter G. Peterson Foundation in response to the PGPF's initiative to surface possible solutions to the debt crisis that recommended they look at Capital Homesteading among the other alternatives received a polite "thank you" in response.
• Not a Just Third Way news item, but interesting in a twisted way is the announcement by the United States Justice Department that they are investigating various cost-cutting alternatives, among which is the idea of shortening prison sentences.
• As of this morning, we have had visitors from 55 different countries and 43 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, Germany, and Brazil. People in Venezuela, South Africa, Poland, Indonesia and the United States spent the most average time on the blog. The most popular posting this past week has been "News from the Network III.52," followed by "Pure Credit for Student Loans," "The 'New' Slavery, Part V: Debt Slavery," "Thomas Hobbes on Private Property," and "The 'New' Slavery, Part III: Wage and Welfare Slavery."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Thursday, January 27, 2011
More of the Same
Less than two full days after President Obama's State of the Union address on Tuesday, virtually all discussion and talk has faded away. Trying to cut the president every possible break — he is, after all, got one heck of a hard job to do, and not the best of times in which to do it — he really didn't say all that much worth remembering. Nor is this because he lacks the ability to make meaningful and memorable speeches.
Getting to the root of the problem, the reason that this State of the Union address isn't worth remembering is that President Obama came across with a lot of good-sounding language that, ultimately, didn't mean much. Yes, we're the greatest country on earth . . . but that starts to sound a little hollow when in almost the same breath the president of the United States starts talking about how other countries have surpassed us and continue to surpass us in many ways.
Then there's the repeated claim that we're out of the Great Depression III. Yes, we know it remains officially a recession, and we're in a period of economic recovery — the stock market is booming, corporate profits are at an all time high, and so on . . . but unemployment remains officially at very high levels and unofficially matches the worst years of the Great Depression II. How are high prices on the stock market — all speculative gains with no increase in the production of marketable goods and services to back it up — a good thing? This sort of speculation and money creation/spending without linking the money supply to the present value of marketable goods and services led to the current mess we're in (and we just read that housing is now in a "double dip" recession), as well as to the Savings and Loan crisis, the Crash of 1929, the Panic of 1907, the Panic of 1893, the Panic of 1873 . . . just keep going.
Back in 1937 in The Recovery Problem in the United States
, Dr. Harold Moulton, president of the Brookings Institution, stated that there are two critical factors in any economic recovery: employment and production. He didn't mean artificial job creation financed by redistribution, or production for which there was no demand except for government subsidies. No, Dr. Moulton was quite specific. Forget about cutting consumption to force savings to finance new capital and create jobs. Forget about "reflating" the currency, keeping prices high so that overextended companies and those too big to fail continue to make enormous profits. Forget about "innovation" in new technologies that only replace workers from badly needed jobs. What needs to be done is to open up ways for people to be able to produce by means of both labor and capital.
Mr. Obama said that we need to raise American productivity. As he noted, steel companies that once used 100 workers now employ 10 to do the same thing. Evidently we need to do even more of this . . . thereby doing more people out of jobs. "Productivity" is, after all, defined as "output per labor hour." Productivity gains are therefore made by getting rid of workers and replacing them with increasingly advanced technology. Mr. Obama's solution to this is to innovate even more, thereby increasing productivity. This will eliminate jobs, but education will, according to the president, train people for the new jobs that will be created. What new jobs? Technology is eliminating them faster than they can be "created."
There is, however, a solution. Enact Capital Homesteading as soon as possible. As an old article about the ownership revolution many years ago put it, "If the Machine Wants Our Job, Let's Buy It." Does it really matter if you are paid for your ownership of labor, or your ownership of capital, as long as you own it?
#30#
Getting to the root of the problem, the reason that this State of the Union address isn't worth remembering is that President Obama came across with a lot of good-sounding language that, ultimately, didn't mean much. Yes, we're the greatest country on earth . . . but that starts to sound a little hollow when in almost the same breath the president of the United States starts talking about how other countries have surpassed us and continue to surpass us in many ways.
Then there's the repeated claim that we're out of the Great Depression III. Yes, we know it remains officially a recession, and we're in a period of economic recovery — the stock market is booming, corporate profits are at an all time high, and so on . . . but unemployment remains officially at very high levels and unofficially matches the worst years of the Great Depression II. How are high prices on the stock market — all speculative gains with no increase in the production of marketable goods and services to back it up — a good thing? This sort of speculation and money creation/spending without linking the money supply to the present value of marketable goods and services led to the current mess we're in (and we just read that housing is now in a "double dip" recession), as well as to the Savings and Loan crisis, the Crash of 1929, the Panic of 1907, the Panic of 1893, the Panic of 1873 . . . just keep going.
Back in 1937 in The Recovery Problem in the United States
, Dr. Harold Moulton, president of the Brookings Institution, stated that there are two critical factors in any economic recovery: employment and production. He didn't mean artificial job creation financed by redistribution, or production for which there was no demand except for government subsidies. No, Dr. Moulton was quite specific. Forget about cutting consumption to force savings to finance new capital and create jobs. Forget about "reflating" the currency, keeping prices high so that overextended companies and those too big to fail continue to make enormous profits. Forget about "innovation" in new technologies that only replace workers from badly needed jobs. What needs to be done is to open up ways for people to be able to produce by means of both labor and capital.Mr. Obama said that we need to raise American productivity. As he noted, steel companies that once used 100 workers now employ 10 to do the same thing. Evidently we need to do even more of this . . . thereby doing more people out of jobs. "Productivity" is, after all, defined as "output per labor hour." Productivity gains are therefore made by getting rid of workers and replacing them with increasingly advanced technology. Mr. Obama's solution to this is to innovate even more, thereby increasing productivity. This will eliminate jobs, but education will, according to the president, train people for the new jobs that will be created. What new jobs? Technology is eliminating them faster than they can be "created."
There is, however, a solution. Enact Capital Homesteading as soon as possible. As an old article about the ownership revolution many years ago put it, "If the Machine Wants Our Job, Let's Buy It." Does it really matter if you are paid for your ownership of labor, or your ownership of capital, as long as you own it?
#30#
Wednesday, January 26, 2011
"Power Naturally and Necessarily Follows Property"
Although yesterday we concluded our short series on the connection between the propertyless condition and the "condition of dependency" — slavery — there is always something more to be said, especially if (as it turned out) people still have questions. This is only to be expected, for there is a serious and widespread lack of understanding about property (private or otherwise) in our society, and consequently widespread misunderstanding of other social institutions based on or derived from private property. These include such things as money and credit, banking, and political power.
It is this last that concerns us today. With all due respect to President Obama and his performance in last night's State of the Union address, he did not say one word about the importance of empowering people politically and economically through direct and sustainable ownership in the means of production, at least that we recall. Rather, the talk was all the need for job creation and for the nation to set aside bipartisan politics and start pulling together to achieve the president's goals.
We agree. There is a serious need to come together to reach a common goal . . . but the goal should be one on which people can agree, rather than on which they "agree to disagree" in order to achieve a superficial and meaningless — and ineffectual — consensus. Obama gave us a salutary and much-needed pep talk, but a State of the Union address is not supposed to be a pep talk. It is supposed to be a forum in which the president presents the current condition of the country and gives solid policy guidelines about what the administration intends to do, not vague promises about Keynesian "job creation" that will magically take place once the other side sees reason and does things his way.
Not that the Republicans have anything positive to offer, either, although they are on target with the need to control spending. What with the president being right about the need to come together, and the Republicans being right about the need to control spending, we have an instance, sadly not unique in history, of two rights making a wrong.
How's that?
As should come as no surprise to readers of this blog, we believe the goal of "job creation" for the sake of providing people with incomes instead of to provide producers with the human factor of production is wasteful as well as pointless and demeaning, to say nothing of being ineffective as a means of bringing about economic recovery from the Great Depression, Part III. "Job creation" is simply an expensive way to achieve redistribution, and helps reinforce the deplorable "entitlement mindset" that has grown up in the United States since the effective end of "free" land in the late 19th century. As F. Ray Marshall, U.S. Secretary of Labor under President Carter, is reported to have said, "There is no more complete rejection of a person than to give them a job you know and they know is useless." (Editorial note: change "a person" to "persons," and we agree 100%.)
The solution to this problem? Focus on production and wealth creation in which everyone can share equitably, participating in that wealth creation by contributing both labor and capital. In short, every citizen should have the effective and meaningful opportunity to become an owner of capital, just as each person is already presumed to own his or her labor. This might require some explanation.
In principle, at least in the United States and the British Commonwealth, every natural person (meaning every human being, man, woman, and child) has the natural rights to life, liberty, property, and the pursuit of happiness (i.e., the acquisition and development of virtue). In reality, trapped by what Louis Kelso and Mortimer Adler called "the slavery of [past] savings," most people are effectively cut off from ownership of a meaningful stake of income-generating assets: capital. Vide Kelso and Adler, The New Capitalists: A Proposal to Free Economic Growth from the Slavery of Savings. New York: Random House, 1961.
Note that "savings" in this context refers to existing accumulations of wealth, by definition a monopoly of the rich. Kelso and Adler advocated a shift from past savings to "future savings" made available through the functioning of Say's Law of Markets (Jean-Baptiste Say, Letters to Malthus, 1821), and the application of Say's Law in the real bills doctrine explained by Adam Smith (The Wealth of Nations, 1776), Henry Thornton, (An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, 1802), and later, after the British Bank Charter Act of 1844, by John Fullarton (On the Regulation of the Currencies of the Bank of England, 1845), and by Kelso and Adler's primary source, Dr. Harold G. Moulton (The Formation of Capital, 1935).
At one time, there was a property qualification to vote. In the United States, this was removed from the Constitution in 1820 on the grounds that no free white male over the age of 21 should be prevented from voting simply because he did not own property in sufficient amount or at all. This was over the protests of such men as Benjamin Watkins Leigh of Virginia and Daniel Webster of Massachusetts. The position of these men and others was that, if non-property owners got the franchise, they would use their political power to take property away from those with property, and redistribute it to those without. As Leigh observed, "Power and property can be separated for a time, but divorced, never. For as soon as the pangs of separation are felt, property will take over power, or power will take over property." Webster concurred: "Power naturally and necessarily follows property."
Consequently, since the 1890s when the "free" land made available by Abraham Lincoln's 1862 Homestead Act effectively ran out (the program continued well into the 20th century, but affected rapidly decreasing numbers of people) and the predominant source of income for most people shifted from ownership of land, to a wage paid by an employer, the federal and state governments have passed increasing numbers of laws intended to redistribute existing wealth in an effort to make the distribution of wealth marginally equitable. As was only to be expected, this has increased government power enormously, as it has vested effective ownership of the means of production in the State. Ownership and control are the same in all codes of law; if you hold legal title to something, yet can only use it as and when I give permission, the law maintains that I, not you, am the owner. Unfortunately, while the social legislation was and remains necessary to keep society together after a fashion, it has done nothing to address the underlying problem: the propertyless condition of the great mass of people. They remain powerless, with the State necessarily stepping in and providing (or, more accurately, trying to provide) that of which the lack of ownership of the means of production has deprived most people.
Thus, Webster and Leigh, while correct, were doing the exact opposite of what they should have done. Rather than restrict the franchise to those who owned a meaningful stake of capital (into which category we can put land as well as technology), the effort should have been to make certain that the universal franchise was matched by universal opportunity to become an owner of capital. Socialism and the Welfare State try to make everyone an owner, but only achieve this by abolishing private property in the means of production, and substituting the State for private owners controlling their own lives with the power with which property vests them.
The State, however, cannot make everyone an owner by destroying ownership. The State can only legitimately provide a level playing field, that is, equality of opportunity, for everyone to be an owner, as Lincoln did with land in the 19th century. What is needed now is a "Capital Homestead Act," a concept discussed on the website of the Center for Economic and Social Justice ("CESJ").
#30#
It is this last that concerns us today. With all due respect to President Obama and his performance in last night's State of the Union address, he did not say one word about the importance of empowering people politically and economically through direct and sustainable ownership in the means of production, at least that we recall. Rather, the talk was all the need for job creation and for the nation to set aside bipartisan politics and start pulling together to achieve the president's goals.
We agree. There is a serious need to come together to reach a common goal . . . but the goal should be one on which people can agree, rather than on which they "agree to disagree" in order to achieve a superficial and meaningless — and ineffectual — consensus. Obama gave us a salutary and much-needed pep talk, but a State of the Union address is not supposed to be a pep talk. It is supposed to be a forum in which the president presents the current condition of the country and gives solid policy guidelines about what the administration intends to do, not vague promises about Keynesian "job creation" that will magically take place once the other side sees reason and does things his way.
Not that the Republicans have anything positive to offer, either, although they are on target with the need to control spending. What with the president being right about the need to come together, and the Republicans being right about the need to control spending, we have an instance, sadly not unique in history, of two rights making a wrong.
How's that?
As should come as no surprise to readers of this blog, we believe the goal of "job creation" for the sake of providing people with incomes instead of to provide producers with the human factor of production is wasteful as well as pointless and demeaning, to say nothing of being ineffective as a means of bringing about economic recovery from the Great Depression, Part III. "Job creation" is simply an expensive way to achieve redistribution, and helps reinforce the deplorable "entitlement mindset" that has grown up in the United States since the effective end of "free" land in the late 19th century. As F. Ray Marshall, U.S. Secretary of Labor under President Carter, is reported to have said, "There is no more complete rejection of a person than to give them a job you know and they know is useless." (Editorial note: change "a person" to "persons," and we agree 100%.)
The solution to this problem? Focus on production and wealth creation in which everyone can share equitably, participating in that wealth creation by contributing both labor and capital. In short, every citizen should have the effective and meaningful opportunity to become an owner of capital, just as each person is already presumed to own his or her labor. This might require some explanation.
In principle, at least in the United States and the British Commonwealth, every natural person (meaning every human being, man, woman, and child) has the natural rights to life, liberty, property, and the pursuit of happiness (i.e., the acquisition and development of virtue). In reality, trapped by what Louis Kelso and Mortimer Adler called "the slavery of [past] savings," most people are effectively cut off from ownership of a meaningful stake of income-generating assets: capital. Vide Kelso and Adler, The New Capitalists: A Proposal to Free Economic Growth from the Slavery of Savings. New York: Random House, 1961.
Note that "savings" in this context refers to existing accumulations of wealth, by definition a monopoly of the rich. Kelso and Adler advocated a shift from past savings to "future savings" made available through the functioning of Say's Law of Markets (Jean-Baptiste Say, Letters to Malthus, 1821), and the application of Say's Law in the real bills doctrine explained by Adam Smith (The Wealth of Nations, 1776), Henry Thornton, (An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, 1802), and later, after the British Bank Charter Act of 1844, by John Fullarton (On the Regulation of the Currencies of the Bank of England, 1845), and by Kelso and Adler's primary source, Dr. Harold G. Moulton (The Formation of Capital, 1935).
At one time, there was a property qualification to vote. In the United States, this was removed from the Constitution in 1820 on the grounds that no free white male over the age of 21 should be prevented from voting simply because he did not own property in sufficient amount or at all. This was over the protests of such men as Benjamin Watkins Leigh of Virginia and Daniel Webster of Massachusetts. The position of these men and others was that, if non-property owners got the franchise, they would use their political power to take property away from those with property, and redistribute it to those without. As Leigh observed, "Power and property can be separated for a time, but divorced, never. For as soon as the pangs of separation are felt, property will take over power, or power will take over property." Webster concurred: "Power naturally and necessarily follows property."
Consequently, since the 1890s when the "free" land made available by Abraham Lincoln's 1862 Homestead Act effectively ran out (the program continued well into the 20th century, but affected rapidly decreasing numbers of people) and the predominant source of income for most people shifted from ownership of land, to a wage paid by an employer, the federal and state governments have passed increasing numbers of laws intended to redistribute existing wealth in an effort to make the distribution of wealth marginally equitable. As was only to be expected, this has increased government power enormously, as it has vested effective ownership of the means of production in the State. Ownership and control are the same in all codes of law; if you hold legal title to something, yet can only use it as and when I give permission, the law maintains that I, not you, am the owner. Unfortunately, while the social legislation was and remains necessary to keep society together after a fashion, it has done nothing to address the underlying problem: the propertyless condition of the great mass of people. They remain powerless, with the State necessarily stepping in and providing (or, more accurately, trying to provide) that of which the lack of ownership of the means of production has deprived most people.
Thus, Webster and Leigh, while correct, were doing the exact opposite of what they should have done. Rather than restrict the franchise to those who owned a meaningful stake of capital (into which category we can put land as well as technology), the effort should have been to make certain that the universal franchise was matched by universal opportunity to become an owner of capital. Socialism and the Welfare State try to make everyone an owner, but only achieve this by abolishing private property in the means of production, and substituting the State for private owners controlling their own lives with the power with which property vests them.
The State, however, cannot make everyone an owner by destroying ownership. The State can only legitimately provide a level playing field, that is, equality of opportunity, for everyone to be an owner, as Lincoln did with land in the 19th century. What is needed now is a "Capital Homestead Act," a concept discussed on the website of the Center for Economic and Social Justice ("CESJ").
#30#
Tuesday, January 25, 2011
The "New" Slavery, Part V: Ending Slavery
As we mentioned previously in this short series, William Cobbett, "the Poor Man's Friend," linked slavery to the condition of propertylessness. This, Cobbett claimed, is true whether one is legally a slave, or is nominally a free man or woman who lacks ownership. Without direct ownership of the means of production recognized as a natural right inhering in every human being, "you may call yourself what you will, but you are a slave." Was this just some early 19th century "radical" mouthing off and venting his considerable spleen at the establishment? Or is there substance behind the rant?
Aristotle seems to have agreed with Cobbett's assessment — as did the fathers of the "distributist" movement, G. K. Chesterton and Hilaire Belloc, who regarded Cobbett as the "Apostle of Distributism." As a matter of fact (if you haven't figured it out already), we, too, believe that Cobbett's analysis is correct. The problem becomes what to do about it.
Again, Cobbett's prescription is, all things considered, pretty much what needs to be done. First, don't be dependent on anyone else for your income, but own a meaningful private property stake of some kind of capital. Second, stay off the welfare rolls, thereby avoiding becoming a slave of the State. Third and finally, live within your means, not becoming a slave of the moneylenders. As Cobbett explained in Advice to Young Men,
With all due respect, however (and we mean that — Dr. Bales has done incredible work), the plan does not address the underlying causes of slavery that we have examined in this short series. Dr. Bales appears to take our existing political and, especially, economic institutions for granted.
If someone wanted to help advance Dr. Bales's crusade and quickly bring an end to slavery throughout the world, he or she could do no better than to introduce him to the potential of Capital Homesteading to do that very thing by promoting widespread direct ownership of the means of production.
This does not mean in any way that Dr. Bales's six-point plan isn't essential or would not be effective — but it relies on having other things in place to be able to work to achieve the desired goal. The most important of these "other things" is (as you might expect) access to the means of acquiring and possessing private property in the means of production.
This is what Capital Homesteading is designed to do, and to free humanity not only from the slavery of past savings, but effective "real" slavery, whatever you might want to call it.
#30#
Aristotle seems to have agreed with Cobbett's assessment — as did the fathers of the "distributist" movement, G. K. Chesterton and Hilaire Belloc, who regarded Cobbett as the "Apostle of Distributism." As a matter of fact (if you haven't figured it out already), we, too, believe that Cobbett's analysis is correct. The problem becomes what to do about it.
Again, Cobbett's prescription is, all things considered, pretty much what needs to be done. First, don't be dependent on anyone else for your income, but own a meaningful private property stake of some kind of capital. Second, stay off the welfare rolls, thereby avoiding becoming a slave of the State. Third and finally, live within your means, not becoming a slave of the moneylenders. As Cobbett explained in Advice to Young Men,
The great source of independence, the French express in a precept of three words, 'Vivre de peu,' which I have always very much admired. 'To live upon little' is the great security against slavery; and this precept extends to dress and other things besides food and drink. When DOCTOR JOHNSON wrote his Dictionary, he put in the word pensioner thus: 'PENSIONER — A slave of the state.' After this he himself became a pensioner! And thus, agreeably to his own definition, he lived and died 'a slave of state!' What must this man of great genius, and of great industry too, have felt at receiving this pension! Could he be so callous as not to feel a pang upon seeing his own name placed before his own degrading definition? And what could induce him to submit to this? His wants, his artificial wants, his habit of indulging in the pleasures of the table; his disregard of the precept 'Vivre de peu.' This was the cause; and, be it observed, that indulgences of this sort, while they tend to make men poor and expose them to commit mean acts, tend also to enfeeble the body, and more especially to cloud and to weaken the mind. (Letter I, To A Youth)This, of course, is something of a contrast to Dr. Kevin Bales's prescription of how to end slavery in the modern world, described in his book, Ending Slavery: How We Free Today's Slaves (Berkeley, California: University of California Press, 2008). Dr. Bales's six-point plan is, all things considered, as good a program that can be developed from within the existing economic and political framework: 1) protecting, 2) arming and 3) cloning the liberators, 4) enacting and 5) enforcing effective antislavery legislation, and 6) helping freed slaves heal.
With all due respect, however (and we mean that — Dr. Bales has done incredible work), the plan does not address the underlying causes of slavery that we have examined in this short series. Dr. Bales appears to take our existing political and, especially, economic institutions for granted.
If someone wanted to help advance Dr. Bales's crusade and quickly bring an end to slavery throughout the world, he or she could do no better than to introduce him to the potential of Capital Homesteading to do that very thing by promoting widespread direct ownership of the means of production.
This does not mean in any way that Dr. Bales's six-point plan isn't essential or would not be effective — but it relies on having other things in place to be able to work to achieve the desired goal. The most important of these "other things" is (as you might expect) access to the means of acquiring and possessing private property in the means of production.
This is what Capital Homesteading is designed to do, and to free humanity not only from the slavery of past savings, but effective "real" slavery, whatever you might want to call it.
#30#
Monday, January 24, 2011
The "New" Slavery, Part V: Debt Slavery
In the previous posting in this series, we looked at how money can (and is) created to finance new capital formation without being enslaved to existing accumulations of savings. All you do is back the issuance of new money with the present value of existing and future marketable goods and services. What happens, however, if you don't back the issuance of new money with the present value of existing inventories of goods and services or the new capital to be valued at the present value of the future goods and services to be produced? What happens if, as now, you simply create the money first, backed by the general promise of the State, and hope that the money will eventually end up invested somewhere?
What happens? Inflation. By creating money before you have drawn a bill — entered into a contract conveying ownership of the matter of the contract — based on real, present value, you haven't actually created a claim on valuable new, future wealth. The only thing you've done is create more claims on existing wealth . . . that belongs to somebody else, thereby effectively abolishing private property as a meaningful institution.
Understand, of course, that — consistent with Aquinas's conclusion that potential being and actual being are both different stages of being — the present value of future (potential) goods and services is just as "real" and material — that is, just as valuable — as the present value of existing (actual) inventories of goods and services. It is all "value," and it is "value" in the same way that all value is value. (This is the "analogy of being" . . . and you had no idea a discussion on savings could get this deep, did you?)
Unfortunately, Keynesian economics, the most widespread economics today, restricts all financing for new capital to existing accumulations of savings. Subordinating economics to politics, the question becomes how to manipulate the currency and the law — monetary and fiscal policy — in order to try and ensure that 1) there is sufficient "effective demand" (income) in the economy to keep the economy going, and 2) there is sufficient savings (reductions in consumption) to provide financing for new capital. This is what Moulton called, "the economic dilemma" . . . and then demonstrated that it was, financially and economically speaking, a red herring. (The Formation of Capital. Washington, DC: Economic Justice Media, 2010, 26-36.)
The "economic dilemma" is not, however, a red herring to the Keynesians, Monetarists, or Austrians. The main question that seems to obsess adherents of all these schools is if, or to what degree the State should interfere in the market in order to ensure that the economy actually does what it's supposed to do, i.e., allocate resources to meet people's wants and needs. Keynesians recommend virtually total control, while Austrians want no control. The Monetarists tend to fall somewhere in between. What keeps any of the schools from coming up with a viable solution is that they all assume the slavery of past savings as a given.
Of the three mainstream schools of economics, the Austrians seem to have the greatest respect for individual human dignity, at least in regards to the natural rights of life, liberty, and property. Keynesians tend to become diverted in a concern for quality of life in the aggregate, rather than the dignity of specific human beings. As a result, in the Keynesian analysis individual rights of life, liberty, and property tend either to get lost in the shuffle or defined out of existence. Not the Keynesians, the Monetarists nor the Austrians take into account the fact that having a right is not the same as exercising a right — but that is an issue for another day. Right now the question is how, trapped by the slavery of savings, Keynesian economics claims the system comes up with the savings presumed necessary to finance new capital formation and thereby create jobs.
The answer is simple, as least to a Keynesian: inflate the currency and manipulate the interest rate. Keep in mind, however, that Keynesians claim it isn't real or "true" inflation until full employment has been reached (vide Keynes's General Theory, III.10.ii, V.21.v). In the real world, inflating the currency raises prices to consumers. This forces consumers to cut consumption by paying more for less. This meets the definition of "saving" within the past savings paradigm. But how do the savings effected by reductions in consumption make their way to investment in new capital? By increasing the profits to producers. Producers — owners of capital — are getting higher prices for fewer goods and services, thereby enjoying a greater real income. This increases retained earnings (corporate savings) that are then reinvested in new capital.
There are just a couple of things wrong with this Keynesian scenario, however. One, any accountant can tell you that retained earnings are never used to finance new capital formation. The only ordinary charge against retained earnings is dividends, not expenditures for new capital. It just doesn't happen that way.
"Retained earnings" represents prior period income that has already been "retained," that is, reinvested in the corporation. Retained earnings are a statement of owners' equity. "Retained earnings" is not an asset account, as a quick look at any corporate balance sheet will tell you. Cash that has been invested in the business may be used to purchase other assets, but "retained earnings" does not thereby change by so much as one cent. To think otherwise is to confuse — as Keynes clearly did — ownership and the thing owned.
This should come as no surprise. Keynesian economics rides roughshod over private property because Keynes had no real understanding of the institution — and thus of the derivatives of private property, i.e., money, credit, interest, and banking. Keynes's General Theory of Employment, Interest, and Money (1936), possibly, along with Karl Marx's Das Kapital (1867), the most influential book on economics in our day, is based on erroneous ideas of interest and money! Keynes's rejection of Say's Law of Markets suggests further that he didn't truly understand employment, either, but that is a posting for another day.
The other thing wrong with the Keynesian scenario is that, the more the State tries to "stimulate demand" or promote new investment by inflating the currency, the more it has to "tinker" with other things and take over every aspect of the economy. Is the price level rising too fast? Increase the price of money by raising interest rates. (This makes sense if you define inflation as a rise in the price level after reaching full employment, for then you only have to claim that you haven't reached "full employment," and thus the rise in the price level is "due to other factors" than inflation.) Has the price level risen to the point that companies are making too much in profits, with a negative impact on effective demand? Tax the excess away and redistribute.
This last accommodation to the slavery of savings leads directly to yet another form of slavery: debt slavery. This, too, is easy to understand.
It is not politically feasible to raise corporate taxes too high. For one thing, it offends the people who make political contributions. For another, it takes away the savings allegedly needed to finance new capital and thus create jobs. No, it's better to tax "the rich" and redistribute that money than to harm corporate savings.
Taxing "the rich," however, creates another set of problems. First, the amount of money that can be raised by increasing taxes (the tax rate) instead of increasing taxable income (the tax base) is frequently negative in its effect. This is because, faced with increased taxes, the rich have ways of avoiding taxation. A 5% increase in the rate in all tax brackets may look good on paper, but there are ways to reduce your income without in any way reducing your wealth — if you're rich enough. For example, don't vote yourself a dividend, but retain the money in your corporation. That way you avoid the "double tax" on corporate profits . . . reducing the taxes you pay, but retaining the money behind the corporate screen. Besides, if you really need the money, you can sell some of your shares, on which you are taxed only on the net above cost, and then usually at a lower rate than "earned" income. (We won't get into the various ways to generate capital losses to offset gains, thereby zeroing out the effect of selling shares.)
But isn't that shortfall made up by increasing the taxes at the same time on the non-rich? Not really. For one thing, the rich pay more simply because they have more. When they reduce or shelter their income, there is less income in the system to tax. For another, a 5% across the board tax increase means one thing to a rich person who goes from 35% to 40% — a 14.28% increase — and quite another to a poor person who goes from 10% to 15% — a 50% increase. A tax increase to the rich may mean some inconvenience or delaying the enjoyment of one's income for a time. The same increase in the rate to the poor can be a disaster.
The problem with all the tinkering and relying on existing savings to finance new capital formation is that, as Moulton pointed out, the resulting decrease in consumer demand makes the new capital less financially feasible. To keep the economy going, consumer demand has to be made up somewhere. As ownership of capital has become increasingly concentrated, shortfalls in effective demand have increasingly been made up by increases in consumer debt. Non-mortgage debt (we won't get into the mess with mortgage debt) has been rising at a rapid rate since the early 1950s, as this link to the St. Louis Federal Reserve makes clear.
As you can see from the chart, you could have ignored the per capita figure in 1950. By 2008, it had risen to over $8,300. In 2010, it was over $10,000 — and that's per capita, not by household, the datum on which the chart is based. The message is clear. For most people, real income is declining rapidly, and the value lost is being transferred to the already wealthy via inflation caused by government debt and reliance on consumer debt, increasing the growing gap between the rich and the poor at an accelerating rate. The problem is what to do about it.
#30#
What happens? Inflation. By creating money before you have drawn a bill — entered into a contract conveying ownership of the matter of the contract — based on real, present value, you haven't actually created a claim on valuable new, future wealth. The only thing you've done is create more claims on existing wealth . . . that belongs to somebody else, thereby effectively abolishing private property as a meaningful institution.
Understand, of course, that — consistent with Aquinas's conclusion that potential being and actual being are both different stages of being — the present value of future (potential) goods and services is just as "real" and material — that is, just as valuable — as the present value of existing (actual) inventories of goods and services. It is all "value," and it is "value" in the same way that all value is value. (This is the "analogy of being" . . . and you had no idea a discussion on savings could get this deep, did you?)
Unfortunately, Keynesian economics, the most widespread economics today, restricts all financing for new capital to existing accumulations of savings. Subordinating economics to politics, the question becomes how to manipulate the currency and the law — monetary and fiscal policy — in order to try and ensure that 1) there is sufficient "effective demand" (income) in the economy to keep the economy going, and 2) there is sufficient savings (reductions in consumption) to provide financing for new capital. This is what Moulton called, "the economic dilemma" . . . and then demonstrated that it was, financially and economically speaking, a red herring. (The Formation of Capital. Washington, DC: Economic Justice Media, 2010, 26-36.)
The "economic dilemma" is not, however, a red herring to the Keynesians, Monetarists, or Austrians. The main question that seems to obsess adherents of all these schools is if, or to what degree the State should interfere in the market in order to ensure that the economy actually does what it's supposed to do, i.e., allocate resources to meet people's wants and needs. Keynesians recommend virtually total control, while Austrians want no control. The Monetarists tend to fall somewhere in between. What keeps any of the schools from coming up with a viable solution is that they all assume the slavery of past savings as a given.
Of the three mainstream schools of economics, the Austrians seem to have the greatest respect for individual human dignity, at least in regards to the natural rights of life, liberty, and property. Keynesians tend to become diverted in a concern for quality of life in the aggregate, rather than the dignity of specific human beings. As a result, in the Keynesian analysis individual rights of life, liberty, and property tend either to get lost in the shuffle or defined out of existence. Not the Keynesians, the Monetarists nor the Austrians take into account the fact that having a right is not the same as exercising a right — but that is an issue for another day. Right now the question is how, trapped by the slavery of savings, Keynesian economics claims the system comes up with the savings presumed necessary to finance new capital formation and thereby create jobs.
The answer is simple, as least to a Keynesian: inflate the currency and manipulate the interest rate. Keep in mind, however, that Keynesians claim it isn't real or "true" inflation until full employment has been reached (vide Keynes's General Theory, III.10.ii, V.21.v). In the real world, inflating the currency raises prices to consumers. This forces consumers to cut consumption by paying more for less. This meets the definition of "saving" within the past savings paradigm. But how do the savings effected by reductions in consumption make their way to investment in new capital? By increasing the profits to producers. Producers — owners of capital — are getting higher prices for fewer goods and services, thereby enjoying a greater real income. This increases retained earnings (corporate savings) that are then reinvested in new capital.
There are just a couple of things wrong with this Keynesian scenario, however. One, any accountant can tell you that retained earnings are never used to finance new capital formation. The only ordinary charge against retained earnings is dividends, not expenditures for new capital. It just doesn't happen that way.
"Retained earnings" represents prior period income that has already been "retained," that is, reinvested in the corporation. Retained earnings are a statement of owners' equity. "Retained earnings" is not an asset account, as a quick look at any corporate balance sheet will tell you. Cash that has been invested in the business may be used to purchase other assets, but "retained earnings" does not thereby change by so much as one cent. To think otherwise is to confuse — as Keynes clearly did — ownership and the thing owned.
This should come as no surprise. Keynesian economics rides roughshod over private property because Keynes had no real understanding of the institution — and thus of the derivatives of private property, i.e., money, credit, interest, and banking. Keynes's General Theory of Employment, Interest, and Money (1936), possibly, along with Karl Marx's Das Kapital (1867), the most influential book on economics in our day, is based on erroneous ideas of interest and money! Keynes's rejection of Say's Law of Markets suggests further that he didn't truly understand employment, either, but that is a posting for another day.
The other thing wrong with the Keynesian scenario is that, the more the State tries to "stimulate demand" or promote new investment by inflating the currency, the more it has to "tinker" with other things and take over every aspect of the economy. Is the price level rising too fast? Increase the price of money by raising interest rates. (This makes sense if you define inflation as a rise in the price level after reaching full employment, for then you only have to claim that you haven't reached "full employment," and thus the rise in the price level is "due to other factors" than inflation.) Has the price level risen to the point that companies are making too much in profits, with a negative impact on effective demand? Tax the excess away and redistribute.
This last accommodation to the slavery of savings leads directly to yet another form of slavery: debt slavery. This, too, is easy to understand.
It is not politically feasible to raise corporate taxes too high. For one thing, it offends the people who make political contributions. For another, it takes away the savings allegedly needed to finance new capital and thus create jobs. No, it's better to tax "the rich" and redistribute that money than to harm corporate savings.
Taxing "the rich," however, creates another set of problems. First, the amount of money that can be raised by increasing taxes (the tax rate) instead of increasing taxable income (the tax base) is frequently negative in its effect. This is because, faced with increased taxes, the rich have ways of avoiding taxation. A 5% increase in the rate in all tax brackets may look good on paper, but there are ways to reduce your income without in any way reducing your wealth — if you're rich enough. For example, don't vote yourself a dividend, but retain the money in your corporation. That way you avoid the "double tax" on corporate profits . . . reducing the taxes you pay, but retaining the money behind the corporate screen. Besides, if you really need the money, you can sell some of your shares, on which you are taxed only on the net above cost, and then usually at a lower rate than "earned" income. (We won't get into the various ways to generate capital losses to offset gains, thereby zeroing out the effect of selling shares.)
But isn't that shortfall made up by increasing the taxes at the same time on the non-rich? Not really. For one thing, the rich pay more simply because they have more. When they reduce or shelter their income, there is less income in the system to tax. For another, a 5% across the board tax increase means one thing to a rich person who goes from 35% to 40% — a 14.28% increase — and quite another to a poor person who goes from 10% to 15% — a 50% increase. A tax increase to the rich may mean some inconvenience or delaying the enjoyment of one's income for a time. The same increase in the rate to the poor can be a disaster.
The problem with all the tinkering and relying on existing savings to finance new capital formation is that, as Moulton pointed out, the resulting decrease in consumer demand makes the new capital less financially feasible. To keep the economy going, consumer demand has to be made up somewhere. As ownership of capital has become increasingly concentrated, shortfalls in effective demand have increasingly been made up by increases in consumer debt. Non-mortgage debt (we won't get into the mess with mortgage debt) has been rising at a rapid rate since the early 1950s, as this link to the St. Louis Federal Reserve makes clear.
As you can see from the chart, you could have ignored the per capita figure in 1950. By 2008, it had risen to over $8,300. In 2010, it was over $10,000 — and that's per capita, not by household, the datum on which the chart is based. The message is clear. For most people, real income is declining rapidly, and the value lost is being transferred to the already wealthy via inflation caused by government debt and reliance on consumer debt, increasing the growing gap between the rich and the poor at an accelerating rate. The problem is what to do about it.
#30#
Friday, January 21, 2011
News from the Network, Vol. 4, No. 3
A few months ago Reuters reported that American companies had accumulated approximately $1 trillion in cash. The news service speculated that the money would be used to "go private," that is, concentrate ownership of the means of production even more so than at present by buying back their own shares from current owners. A few days ago, word was that the cash holdings of American companies had grown to $2 trillion, or approximately 15% of GDP. In other words, the largest U.S. companies, many of them in the financial services industry — the ones that are showing the most rapid growth and the highest profits — have managed in a very short space of time to pile up a mountain of cash equal to the annual "growth ring" of additional new capital that, before the onset of the current depression, was formed each year in this country.
That's a lot of money — but it gets worse. To whom does that money belong? To the companies? Well, yes . . . but who owns those companies? The boards of directors who are refusing to pay out earnings as dividends to the shareholders? No. That money belongs to the shareholders by virtue of the natural right of private property. In other words, the capitalist system, just as Karl Marx claimed in The Communist Manifesto
(1848), has abolished private property even for capitalists. Shareholders do not control what they own (otherwise they would have received $2 trillion or so in dividends to spend and stimulate the economy), so they can't truly be said to own. Thus, just as Aristotle pointed out with some democratic behavior undermining democracy, capitalistic behavior is undermining capitalism. No wonder Marx said that the last capitalist will sell the rope used to hang him.
But wait! It gets worse! In The Formation of Capital, Dr. Harold Moulton pointed out that cutting consumption to finance new capital formation — or, worse, simply accumulating cash that remains unspent — undermines the economy and can, conceivably, put it into a permanent tailspin. If people aren't consuming but, instead, piling up income without spending it (especially to the tune of $2 trillion!) then $2 trillion in effective demand has been taken out of the economy, and there is that much less incentive to finance new capital, or to continue to produce using existing capital. Consequently, people lose jobs, companies go bankrupt, and the government continues to inflate the currency to provide greater profits that the corporations can pile up unspent. The end is inevitable, with each advance in the stock market bringing the ultimate reckoning ever-closer.
Inevitable, that is, under the existing system run in accordance with the disproved assumptions of Keynesian economics. These problems will be fixed in large measure by the adoption of a Capital Homestead Act, the sooner the better, but certainly no later than 2012. In the meantime,
• The Just Third Way "Bookstore" has had a surprisingly good turnout, going by the usual measures of such things. Our market research told us that, at best, approximately 2% of the population that looks at this kind of advertising actually purchases something, and, according to Amazon, we've had a 3.61% response rate — meaning that, for every 100 people who have visited the "Bookstore," 3.61 of them have made a purchase. (That point-six-one of a person bothers us . . . does that mean he or she is missing .39 of him- or herself?) We could increase that response rate if you would send the link around to your network. If you're "turned off" by the fact that the fiction has been listed first, take heart. We've completely reformatted the store so that CESJ publications are listed first, then those from the Kelso Institute, and then important books by other publishers.
• One new feature we've added to the "Bookstore" is to put up selected works by Mortimer J. Adler, as well as a link to the Center for the Study of the Great Ideas in Chicago, co-founded by Mortimer Adler and Max Weismann. We can only highlight a couple of Dr. Adler's books at a time (well, it is our bookstore, after all), but we think the ones we've selected should help not only in redirecting people's thinking back to the great ideas, but possibly inspire one or two prime movers in academia to rethink the direction that higher education — or even education in general — has been taking for the past century or so. It might even be that Aristotelian and Thomist philosophy might hold the key to the economic and political problems that accompanied the effective end of the "free" capital in land made available by Abraham Lincoln's 1862 Homestead Act.
• Pollant Mpofu in London continues his efforts to introduce the Just Third Way to the movers and shakers in the U.K. and Éire — and to African leaders as well.
• Dave Kelly has been introducing the concepts of the Just Third Way to the principals and interested parties in the Harris Neck initiative. There have been some very positive reactions to how the ideas of the Just Third Way might be applied to the effort to restore the land to the people from whom it was taken during the Second World War.
• A CESJ delegation will be attending a reception given by the Catholic Radio Association tonight at the Catholic University of America. This will be an opportunity to introduce people connected with the "Catholic radio industry" to the idea of the Just Third Way and Capital Homesteading as a Pro-Life economic agenda — and a potential "common ground" on which "Pro-Life" and "Pro-Choice" groups can meet and promote a common goal: economic empowerment of every person.
• As of this morning, we have had visitors from 52 different countries and 41 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, Brazil, and Germany. People in Croatia, South Africa, Venezuela, Poland and Canada spent the most average time on the blog. Reflecting the widespread confusion about the nature of money and credit, the most popular posting this past week has been "Pure Credit for Student Loans." This is followed by "News from the Network III.52," "News from the Network III.51," "The Problem With Distributism," and "It Ain't Rocket Surgery." After a very slight struggle, we decided not to count visits to the Just Third Way "Bookstore," even though the number of visits is more than double any of the (other) postings. It's a temporary measure until the website is redone, even though we plan on updating the intro and featuring different books at the head of the list, depending on our current areas of focus.
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
That's a lot of money — but it gets worse. To whom does that money belong? To the companies? Well, yes . . . but who owns those companies? The boards of directors who are refusing to pay out earnings as dividends to the shareholders? No. That money belongs to the shareholders by virtue of the natural right of private property. In other words, the capitalist system, just as Karl Marx claimed in The Communist Manifesto
(1848), has abolished private property even for capitalists. Shareholders do not control what they own (otherwise they would have received $2 trillion or so in dividends to spend and stimulate the economy), so they can't truly be said to own. Thus, just as Aristotle pointed out with some democratic behavior undermining democracy, capitalistic behavior is undermining capitalism. No wonder Marx said that the last capitalist will sell the rope used to hang him.But wait! It gets worse! In The Formation of Capital, Dr. Harold Moulton pointed out that cutting consumption to finance new capital formation — or, worse, simply accumulating cash that remains unspent — undermines the economy and can, conceivably, put it into a permanent tailspin. If people aren't consuming but, instead, piling up income without spending it (especially to the tune of $2 trillion!) then $2 trillion in effective demand has been taken out of the economy, and there is that much less incentive to finance new capital, or to continue to produce using existing capital. Consequently, people lose jobs, companies go bankrupt, and the government continues to inflate the currency to provide greater profits that the corporations can pile up unspent. The end is inevitable, with each advance in the stock market bringing the ultimate reckoning ever-closer.
Inevitable, that is, under the existing system run in accordance with the disproved assumptions of Keynesian economics. These problems will be fixed in large measure by the adoption of a Capital Homestead Act, the sooner the better, but certainly no later than 2012. In the meantime,
• The Just Third Way "Bookstore" has had a surprisingly good turnout, going by the usual measures of such things. Our market research told us that, at best, approximately 2% of the population that looks at this kind of advertising actually purchases something, and, according to Amazon, we've had a 3.61% response rate — meaning that, for every 100 people who have visited the "Bookstore," 3.61 of them have made a purchase. (That point-six-one of a person bothers us . . . does that mean he or she is missing .39 of him- or herself?) We could increase that response rate if you would send the link around to your network. If you're "turned off" by the fact that the fiction has been listed first, take heart. We've completely reformatted the store so that CESJ publications are listed first, then those from the Kelso Institute, and then important books by other publishers.
• One new feature we've added to the "Bookstore" is to put up selected works by Mortimer J. Adler, as well as a link to the Center for the Study of the Great Ideas in Chicago, co-founded by Mortimer Adler and Max Weismann. We can only highlight a couple of Dr. Adler's books at a time (well, it is our bookstore, after all), but we think the ones we've selected should help not only in redirecting people's thinking back to the great ideas, but possibly inspire one or two prime movers in academia to rethink the direction that higher education — or even education in general — has been taking for the past century or so. It might even be that Aristotelian and Thomist philosophy might hold the key to the economic and political problems that accompanied the effective end of the "free" capital in land made available by Abraham Lincoln's 1862 Homestead Act.
• Pollant Mpofu in London continues his efforts to introduce the Just Third Way to the movers and shakers in the U.K. and Éire — and to African leaders as well.
• Dave Kelly has been introducing the concepts of the Just Third Way to the principals and interested parties in the Harris Neck initiative. There have been some very positive reactions to how the ideas of the Just Third Way might be applied to the effort to restore the land to the people from whom it was taken during the Second World War.
• A CESJ delegation will be attending a reception given by the Catholic Radio Association tonight at the Catholic University of America. This will be an opportunity to introduce people connected with the "Catholic radio industry" to the idea of the Just Third Way and Capital Homesteading as a Pro-Life economic agenda — and a potential "common ground" on which "Pro-Life" and "Pro-Choice" groups can meet and promote a common goal: economic empowerment of every person.
• As of this morning, we have had visitors from 52 different countries and 41 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, Canada, the UK, Brazil, and Germany. People in Croatia, South Africa, Venezuela, Poland and Canada spent the most average time on the blog. Reflecting the widespread confusion about the nature of money and credit, the most popular posting this past week has been "Pure Credit for Student Loans." This is followed by "News from the Network III.52," "News from the Network III.51," "The Problem With Distributism," and "It Ain't Rocket Surgery." After a very slight struggle, we decided not to count visits to the Just Third Way "Bookstore," even though the number of visits is more than double any of the (other) postings. It's a temporary measure until the website is redone, even though we plan on updating the intro and featuring different books at the head of the list, depending on our current areas of focus.
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Thursday, January 20, 2011
The "New" Slavery, Part IV: The Slavery of Past Savings
Yesterday we mentioned that there are people — wage and welfare slaves — who are convinced that they are free. The usual grounds for claiming this are the high level of fixed wages, benefits, and welfare they get. This is a bad situation, for how do you free someone who doesn't think he is enslaved, and will even fight to the death to preserve his slavery?
But wait — it gets worse. The fixed idea in virtually all of modern economics, finance, and (alas) politics is that the only way to finance new capital formation is to cut consumption, accumulate money savings, and then invest. That is, economic growth and development are tied irrevocably to what Louis Kelso and Mortimer Adler called, "the slavery of [past] savings."
Now, the actual phrase that Kelso and Adler used in the subtitle of their second collaboration in 1961, The New Capitalists (lousy title, great ideas), was "the slavery of savings." The word "past" is our addition, put in brackets to show the exercise of editorial license. This, of course, raises the issue as to why we differentiate "savings" and "past savings." Aren't all savings the same?
No — and that's the problem. In The New Capitalists, Kelso and Adler define "savings" as, "the use of goods or services to produce capital goods rather than for immediate consumption." (The New Capitalists. New York: Random House, 1961, 9-10 . . . and, sorry, the page references are to the print edition, not the .pdf provided by the Kelso Institute, and won't match up.) But . . . wait a minute. Doesn't that mean that you have to cut consumption in order to divert goods and services to produce capital goods?
No. First, of course, to the supplier of goods and services, whether they are consumed or invested by the purchaser, it's all consumption — there are two sides to every equation, and you need to look at both sides, just as you do in the accounting equation to distinguish ownership from what is owned. With respect to production, consumption, and income, as Adam Smith noted, the purpose of production is consumption. Embodied in Say's Law of Markets, all production is supposed to end up as consumption. If it doesn't, it's because something is out of balance, usually the fact that those who would consume cannot consume because they can't produce. Ideally, however, production not only equals income, it equals consumption.
The key word in this respect in Kelso and Adler's definition is immediate. The seller is indifferent whether the purchaser uses the seller's productions for immediate consumption, or to form capital to produce other goods and services for consumption. All the seller knows — or needs to know (as long as the invoice is paid) — is that the seller's produce is sold. The seller then realizes revenue. Out of this revenue the seller repays the financing of the capital used to produce the goods sold (thereby generating revenue for someone else), or uses as income to purchase goods for immediate consumption (again generating revenue for someone else). In this way, production in the aggregate not only equals income, it also equals consumption.
Thus, from the standpoint of the seller and the system as a whole, there has actually been an increase, not a decrease in consumption. Harold Moulton pointed this out in his comments on Friedrich von Hayek's analysis of the saving process. As Moulton explained, "Hayek assumes that the creation of new capital necessarily involves a diversion of labor and capital from the production of consumption goods to the creation of capital goods. Again he cites no evidence either in support of the diversion theory or to show that the prices of capital goods and consumers' goods move in the ways indicated." (The Formation of Capital. Washington, DC: Economic Justice Media, 2010, 166.) As Moulton concluded,
The bank may use the promissory note to back smaller fungible promissory notes called "banknotes," or a demand deposit created for the borrower, on which the borrower can draw checks, a check being a form of bill of exchange. The borrower finances the new capital with the banknotes or demand deposit, puts the capital into production, markets the good or service, realizes a profit, and repays the loan — more accurately, redeems the original bill of exchange he or she drew on the present value of the new capital. In this way the money supply expands and contracts with the needs of the economy and, assuming most or all the capital projects on which bills are drawn are sound, the currency is both adequate and stable.
#30#
But wait — it gets worse. The fixed idea in virtually all of modern economics, finance, and (alas) politics is that the only way to finance new capital formation is to cut consumption, accumulate money savings, and then invest. That is, economic growth and development are tied irrevocably to what Louis Kelso and Mortimer Adler called, "the slavery of [past] savings."
Now, the actual phrase that Kelso and Adler used in the subtitle of their second collaboration in 1961, The New Capitalists (lousy title, great ideas), was "the slavery of savings." The word "past" is our addition, put in brackets to show the exercise of editorial license. This, of course, raises the issue as to why we differentiate "savings" and "past savings." Aren't all savings the same?
No — and that's the problem. In The New Capitalists, Kelso and Adler define "savings" as, "the use of goods or services to produce capital goods rather than for immediate consumption." (The New Capitalists. New York: Random House, 1961, 9-10 . . . and, sorry, the page references are to the print edition, not the .pdf provided by the Kelso Institute, and won't match up.) But . . . wait a minute. Doesn't that mean that you have to cut consumption in order to divert goods and services to produce capital goods?
No. First, of course, to the supplier of goods and services, whether they are consumed or invested by the purchaser, it's all consumption — there are two sides to every equation, and you need to look at both sides, just as you do in the accounting equation to distinguish ownership from what is owned. With respect to production, consumption, and income, as Adam Smith noted, the purpose of production is consumption. Embodied in Say's Law of Markets, all production is supposed to end up as consumption. If it doesn't, it's because something is out of balance, usually the fact that those who would consume cannot consume because they can't produce. Ideally, however, production not only equals income, it equals consumption.
The key word in this respect in Kelso and Adler's definition is immediate. The seller is indifferent whether the purchaser uses the seller's productions for immediate consumption, or to form capital to produce other goods and services for consumption. All the seller knows — or needs to know (as long as the invoice is paid) — is that the seller's produce is sold. The seller then realizes revenue. Out of this revenue the seller repays the financing of the capital used to produce the goods sold (thereby generating revenue for someone else), or uses as income to purchase goods for immediate consumption (again generating revenue for someone else). In this way, production in the aggregate not only equals income, it also equals consumption.
Thus, from the standpoint of the seller and the system as a whole, there has actually been an increase, not a decrease in consumption. Harold Moulton pointed this out in his comments on Friedrich von Hayek's analysis of the saving process. As Moulton explained, "Hayek assumes that the creation of new capital necessarily involves a diversion of labor and capital from the production of consumption goods to the creation of capital goods. Again he cites no evidence either in support of the diversion theory or to show that the prices of capital goods and consumers' goods move in the ways indicated." (The Formation of Capital. Washington, DC: Economic Justice Media, 2010, 166.) As Moulton concluded,
Hayek's analysis breaks down at its very beginning. The assumptions on which he predicates his whole argument are not in accordance with the facts of the business world. Moreover, the central issue in the problem of capital formation, namely, the relationship between consumptive demand and the demand for capital goods, has not been analyzed. (Ibid.)If it is not necessary to cut consumption in order to save, however, then what is the source of the financing for new capital? Anyone following this blog on a regular basis has the answer to that: expansion of commercial bank credit. As Moulton explained,
Funds with which to finance new capital formation may be procured from the expansion of commercial bank loans and investments. In fact, new flotations of securities are not uncommonly financed — for considerable periods of time, pending their absorption by ultimate investors — by means of an expansion of commercial bank credit. (Ibid., 104.)To summarize the process very briefly, someone with a productive project — capital — for which he or she has a sound and properly vetted proposal takes the proposal to a commercial bank. The loan officer of the bank looks over the proposal and, if he or she finds that it is sound, agrees to "loan" the money for the project. The "borrower" draws a bill on the present value of the project (creates money), and "discounts" the bill at the commercial bank in exchange for the commercial bank's promissory note.
The bank may use the promissory note to back smaller fungible promissory notes called "banknotes," or a demand deposit created for the borrower, on which the borrower can draw checks, a check being a form of bill of exchange. The borrower finances the new capital with the banknotes or demand deposit, puts the capital into production, markets the good or service, realizes a profit, and repays the loan — more accurately, redeems the original bill of exchange he or she drew on the present value of the new capital. In this way the money supply expands and contracts with the needs of the economy and, assuming most or all the capital projects on which bills are drawn are sound, the currency is both adequate and stable.
#30#
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