News from the Network, Vol. 6, No. 26

We’ve been watching the progress of the Chinese offer for Smithfield Foods, Inc., with great interest.  It does seem, after all, that it would be a perfect test case for a leveraged worker buyout financed by a consortium of banks with the loans rediscounted at the Richmond Federal Reserve.  Ownership of the company would remain in American hands, and what amounts to an economic stimulus of billions of new dollars backed with private sector hard assets instead of government debt would show the way to finance growth and pay down the debt at the same time.

Response to Professor Shakespeare, II: Analyzing Shakespeare

As Jonathan Swift explained in the sixth number of his “Drapier’s Letters,” commenting on what he believed to be the fraud of William Wood’s State-granted monopoly for the coinage of copper halfpence and farthings for Ireland, “I foolishly disdained to have Recourse to Whining, Lamenting, and Crying for Mercy, but rather chose to appeal to Law and Liberty and the common Rights of Mankind, without considering the Climate I was in.”

Response to Professor Shakespeare, I: CESJ’s Position

A few months ago, Mr. Chris Dorf, an occasional participant in the “Kelso Binary Economics Discussion Group” and on this blog who supports Keynesian theory, published some vague accusations against Dr. Norman G. Kurland, president of CESJ.  Mr. Dorf refused to support his accusations with either evidence or logic.  This encouraged a number of other critics of CESJ to join with Mr. Dorf in making further unsubstantiated accusations, particularly after he falsely accused CESJ of “banning” him.

Three Principles of Banking, II: The Solution

Yesterday we described the current financial situation in the world in very broad terms, along with what governments have been doing to try and fix things.  In general, the solution is to print more money backed solely by increases in government debt.  In effect, this is trying to get out of a hole by digging it deeper.

Three Principles of Banking, I: The Situation

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A serious problem in the world today is that the people in charge of the world’s central banks have no idea what a central bank is supposed to do.  Their guiding assumption is that central banks were invented to finance government.  They also believe (erroneously) that “money is peculiarly a creation of the State” (Keynes, Treatise on Money).

News from the Network, Vol. 6, No. 25

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As of this writing, the Dow is up slightly from the “plunge” of the last few days.  This writer’s opinion is that this is a result of the short sellers locking in their profits by buying back what they sold off over the last couple of days.  It could also be that the speculators are counting on some action by the Federal Reserve to pump more worthless cash into the system to stimulate the bubble and raise prices artificially.

Fighting the Last War

During the Great War (a.k.a., World War I), both sides insisted on running head-on against the other, despite the fact that military technology had advanced far beyond tactics.  Nevertheless, the leaders kept on using tactics that were at least half a century out of date.  Yards of territory were gained or lost at the cost of hundreds of thousands of lives.

The Dictatorship of Money, IX: Catholicism and America

Contrary to popular belief among some Catholic groups that there is something inherently wrong in the American system as designed by the Founding Fathers, there is every indication that Leo XIII and other popes saw something special about the United States — in a good way.

The Dictatorship of Money, VIII: “New Things”

As we noted in our last episode in this series, socialism was growing by leaps and bounds in the latter half of the 19^th century, particularly in America, which had seemed immune.  This was largely due to the fact that prior to the Civil War the issue had been between the industrial and commercial capitalism of the North that ran on wage slavery, and the agrarian capitalism of the South that ran on chattel slavery.

Private Sector Money, V: A Final Question

We had one more question come in on this brief series.  This involved the duty of a private issuer of money to disclose how much he or she was issuing and in what form.  As our correspondent asked,

News from the Network, Vol. 6, No. 24

As of this writing (a little after 2:00 pm EDST), the Dow is down more than a hundred points.  It’s up, it’s down.  Don’t even try to second guess it.  Just take your cash to Las Vegas and play the slots or Keno.  You probably won’t come out any better, but you can catch the shows and get free drinks.

Private Sector Money, IV: The Rest of the Story

Now, to get back to the original question that started this series — we don’t think that such private money creation will allow multinationals (or anyone else) to escape taxation or accountability.

Private Sector Money, III: The Same Story

We’ve already seen how in the American Civil War and World War I, the politicians decided to finance the war effort using debt instead of taxes.  In the 19^th and early 20^th centuries following the wars, however, the government made a concerted effort to pay down the war debt.  This put the economy and the money supply back on a more or less sound basis.

Private Sector Money, II: After the Faux

Maintenance of a national debt by the U.S. government began in earnest after the Civil War.  This was in the mistaken belief that the currency had to be backed with government debt, and that if the government paid down its debt, there would be no money.  Reliance on government debt, however, ensured that the people who most needed access to credit were denied that access.

Private Sector Money, I: Antebellum Bucks

Last week we got a (nother) question about money creation.  Given the fact that the more money the government seems to be printing up the less we have, this is a question on everyone’s lips — or, at least, in everyone’s pocketbook.  As our correspondent said,

News from the Network, Vol. 6, No. 23

Despite the evident bafflement and lack of vision exhibited by the powers-that-be on both sides of the aisle, we are making progress in presenting and even implementing the Just Third Way.  This appears to be making people nervous who think — erroneously — that their jobs, reputations, careers, and so on, are somehow threatened by the Just Third Way.

The Non-Essential National Debt

On May 22, 2013, the Wall Street Journal published an op-ed piece by Phil Gramm and Steve McMillin, “The Debt Problem Hasn’t Vanished.”  We thought it was pretty good — except that the authors assumed as a given that the currency had to be backed by government debt.

The Dictatorship of Money, VII: “A Theory of Human Society Peculiar to Itself”

As we saw in yesterday’s posting, the U.S. Supreme Court’s opinion in the Slaughterhouse Cases effectively shifted the source of all rights, especially life, liberty and property, from human beings, to the State.  This, to all intents and purposes, abolished the natural law as the basis for the government of the United States.

The Dictatorship of Money, VI: The Turning Point.2, Continued

As we saw yesterday, in the notorious Dred Scott decision, the United States Supreme Court ruled that, to all intents and purposes, rights come from the State and are vested in the people at the discretion of the State.  Under traditional natural law theory, of course, rights are inherent in each human being, and are vested in the State at the discretion of the people.  As Pius XI pointed out,

The Dictatorship of Money, V: The Turning Point.2

Last week we examined the first “turning point” in people’s understanding of money.  That was the idea that seems to have popped up around the time of the Reformation that rights are not inherent in human beings, but in the State.  By a somewhat circuitous route, this new concept of where rights come from found its way into political economy.  This provided the foundation for the rapid expansion of State power and totalitarianism in the 20^th century.

News from the Network, Vol. 6, No. 22

It’s time to man the barricades.  The British are up in arms over a new portrait of Queen Elizabeth II.  It seems that, in the opinion of some, the portrait makes ’Er Majesty look loike a bloomin’ bloke inna wig.  If only we had so little to worry about on this side of the pond.

More on Fractional Reserve Banking

Last week in response to our posting on fractional reserve banking (“Binary Banking Theory, V: Fractional Reserve Banking,” 05/22/13), we got the following comment: “So, Fractional Reserve banking isn't the same thing as printing money from nothing? Those two ideas are seen as equivalent. The fractional reserve is only referring to the amount of cash or currency (maybe gold or silver) on hand, there is still ultimately 100% reserves, correct?”

The Dictatorship of Money, IV: The Turning Point.1

Right off the bat, we have to admit that the title of this particular posting is misleading.  With respect to the change in the understanding of private property (and, by extension, of the whole of the natural law) has had not one, but at least two “turning points.”

The Dictatorship of Money, III: The Problem of Private Property

As we saw in yesterday’s posting, “Nature” must have given to humanity something other than the State by means of which human life was to be maintained in a manner that respects the demands of human dignity.  That means is the natural right to be an owner, vested in every human being by nature itself: private property.

The Dictatorship of Money, II: The Role of the State

Last week we noted Pope Francis’s call for world financial reform.  We raised the possibility, however, that what the pope says about financial reform might not be quite what some people hear.  Take, for example, the meaning of “free competition.”

News from the Network, Vol. 6, No. 21

Shades of The Informer.  We admit this one has us completely baffled.  An Irish student who was in the United States legally on a student visa had her visa revoked and was told (in effect) to “get out of Dodge” by mid-June.  This was after she was turned in to U.S. authorities . . . by a group funded by the Irish government established to help Irish immigrants.

The Dictatorship of Money, I: Call for Reform

We were going to title this particular blog, “And Now For Something Completely Different.”  That, however, would have been too obvious a rip-off of Monty Python, and, frankly, it’s not any different from anything we’ve been saying all along, anyway.

Binary Banking Theory, V: Fractional Reserve Banking

As we have seen, commercial banks of issue can create money by accepting bills of exchange and issuing promissory notes.  If money is created properly, that is, only by issuing promissory notes to discount bills of exchange with real value, the money supply for an economy will be elastic (that is, expand and contract as needed), stable, uniform, and asset-backed.

Binary Banking Theory, IV: The Real Bills Doctrine

If Say’s Law of Markets confuses most of today’s “Currency School” economists, its application in the “real bills doctrine utterly baffles them.  It’s not that hard to understand why.  If you’re convinced that “money” is and can only be coin, banknotes, and (sometimes) demand deposits and some time deposits (M₂), you’re not going to be able to grasp the intricacies of a system based on the common sense understanding of money as “anything that can be accepted in settlement of a debt.”

Binary Banking Theory, III: Say’s Law of Markets

One of the most misunderstood “laws” of economics, distorted or confused by capitalists, socialists, liberals, and conservatives, is “Say’s Law of Markets.”  Say’s Law is based on private property and freedom of association, which probably accounts for the lack of understanding today.

News from the Network, Vol. 6, No. 20

As of this writing the stock market is up.  This allegedly somehow reflects the improving economy as seen in the lack of employment opportunities.  How this is a good thing is a mystery, for in this writer’s opinion the stock market is far from being the leading economic indicators it’s touted to be.

Binary Banking Theory, II: Bills, Notes, Money, and Credit

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As we stated in yesterday’s posting, we decided to enhance our popularity by foregoing to press on our support for an income tax, and support everybody’s favorite institution: the commercial and central banking system.  We anticipate that after reading this posting, and before the end of the day, contributions to CESJ and book sales will have soared to unprecedented heights.

Binary Banking Theory, I: Types of Banks

We were planning on starting a brief series on the Just Third Way philosophy of taxation.  We believe that a single rate personal income tax levied on all income above a meaningful exemption level and set at a rate sufficient to cover government expenditures and pay down the debt is the most equitable and efficient way to cover the cost of government.  We oppose proposals for a heavily regressive consumption or sales tax that robs from the poor to give to the rich.

Ownership for Workers (and Everybody Else) Now!

 As you know, we attended the annual ESOP Association Conference last week.  It was not too long after President Obama addressed the students at Ohio State University, urging them to become more active politically.

More Thoughts on ESOPs

Having taken advantage of the presentations at last week’s annual ESOP Association conference, we thought we’d share some additional thoughts we had about ESOPs.  There’s not much to say about the conference itself.  It was well-run, the material was relevant and useful, even valuable.  There was just enough good humor and entertainment to help get across material that, frankly, can get a little esoteric at times.

News from the Network, Vol. 6, No. 19

We’ve been attending the annual ESOP Association conference this week.  The big thing being addressed was the threat to eliminate the tax-deductibility of dividends paid through an ESOP.  It is being characterized as some sort of “tax subsidy.”  We’re not certain of the logic behind this, but tax deductibility of dividends paid through the ESOP is no more a “tax subsidy” than any other form of compensation that is deductible as a legitimate business expense.

The JBM S-Corp Strategy

Since the Annual ESOP Association Conference begins today, it seems appropriate to say a few words about a strategy for new ESOPs that most closely approaches the concept of “Capital Homesteading” within the framework of current law and is consistent with the Just Third Way and Justice-Based Leadership and Management as far as the law allows.

To the Wall Street Journal (Again)

Back in early April (the fourth, to be exact), we sent yet another letter to the Wall Street Journal about one of their editorials.  There seemed to be some little confusion between the role of taxes, and the role of financial institutions in funding economic growth.  Naturally we put in our two cents:

What is “Scarcity”?

There is massive confusion today in economics about the meanings of "economic scarcity" and "insufficiency."  We need to address this because confusing the two leads to some very, very, very bad decisions.

Defining Money, X: A Concluding Comment

Last week we posted the final part of our response to an enquirer who wanted a little clarification on our position on money and credit.  This was written before our annual Rally at the Federal Reserve on April 26, 2013.

News from the Network, Vol. 6, No. 18

It is, of course, too early to tell, but we’ve seen signs of something of a sea-change in people’s attitudes toward the Just Third Way.  The “official” jobs report is “encouraging,” the stock market is shooting toward a new high (and will probably hit 15,000 again by COB today), and so on.

Defining Money, IX: More on the State

Our correspondent seemed to like the responses we gave.  In fact, he sent us a thank you note!: “Thank you for your elaborate explanation.  I had not been aware before of the necessary connection between the real bills doctrine and Say's Law.”

Defining Money, VIII: The Role of the State

Given that many people seem absolutely convinced that only the State has the right to create money, it comes as something of a shock to find out that the oft-cited provision in the United States Constitution (Article I, § 8) just as absolutely gives no such power to Congress or to anyone else.

Why a Central Bank?, III: What Do We Do?

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Immediately after the presidential campaign of 1912, Woodrow Wilson began hedging on his promise to do something about the financial system.  This, of course, was unacceptable to William Jennings Bryan, who had been made Secretary of State in return for his critical support in getting Wilson elected.

Why a Central Bank?, II: Where Did It Come From?

Why was the Federal Reserve System established?  After Andrew Jackson shut down the Second Bank of the United States in the 1830s, the United States lacked a uniform and stable currency.  Gold and silver coin did not circulate much outside cities in the East, and there wasn’t enough of it, anyway.  Most people made do either with accounts with people and businesses with which they did business, or state bank and private bank banknotes, many of which fluctuated wildly in value, rarely passing at a full dollar-for-dollar.

News from the Network, Vol. 6, No. 17

One thing we’ve noticed from the responses to this blog and to CESJ books and lectures is that few people really understand two institutions basic to any society: private property and money.  The problem is that modern economic theory has made these two things so complicated that their very simplicity comes across to some people as some odd, possibly even sinister.

Why a Central Bank?, I: What Do Banks Do?

Tomorrow we join the Coalition for Capital Homesteading at their annual demonstration at the Federal Reserve Board of Governors building in Washington, DC.  If you’re in the neighborhood, you might consider showing up to see the fun . . . and hear a few speeches, including a very brief one by me that might sound suspiciously like this posting (assuming I can condense it into five minutes or less).

Defining Money, VII: The Expanded Law of Reflux

The friend’s analysis raises a second problem.  Compared to allowing the government to emit bills of credit at all, this is a relatively minor issue.

Defining Money, VI: The Real Bills Doctrine

Say’s Law of Markets, based on the fact that the purpose of production is consumption, is applied in the “real bills doctrine.”  The real bills doctrine is simply this: that if the present value of private sector bills and notes used as the media of exchange in an economy is equal to the present value of all existing and future marketable goods and services in an economy (i.e., total savings, whether past or future), there will be neither inflation nor deflation, but an elastic, asset-backed money supply sufficient to meet the demands of agriculture, commerce and industry.

Defining Money, V: Say’s Law

Say’s Law of Markets is based on the obvious fact that because nothing can be consumed until and unless it is first produced, we must first produce before we can consume.  If we wish to consume what others produce, we can only do so (absent gift or alms) by offering something we have produced for what others have produced.

News from the Network, Vol. 6, No. 16

It’s getting close to the annual Rally at the Fed, which will be taking place next week.  In the interim, of course, life goes on (more or less), with slow but sure progress being made in a number of areas.

Defining Money, IV: The Purpose of Production

Say’s Law of Markets assumes everything we wrote in the previous postings in this series — the “banking principle,” as a given.  That is why the classical economists Adam Smith, Jean-Baptiste Say, Thomas Tooke, and others are called “banking school.”

Defining Money, III: A Bit About Bills and Banks

Yesterday we saw that all money is a contract, just as (in a sense) all contracts are money.  All contracts consist of offer, acceptance, and consideration.  Contracts that are used to create money (as opposed to changing the form of money, i.e., future v. past savings) are called bills of exchange.

Defining Money, II: The Medium of Exchange

Here is the beginning of the multi-part response to the question we were posed in yesterday’s posting.  Even considering the length of the reply, we didn’t get around to answering.  The e-mail arrived at the start of a holiday weekend, and for some reason known only to Baum’s demon of electricity, our internet access went out temporarily.

Defining Money, I: The Question

A week or two ago we got a question in the (e) mail.  Because we spent an entire morning answering it, we thought we’d break it up and turn it into a series of blog postings.  Since at that time we still hadn’t done our taxes, it seemed like a really good idea.

News from the Network, Vol. 6, No. 15

Most of this week has been concerned with preparations for next week’s trip to Cleveland and the annual Rally at the Federal Reserve on April 26, 2013.  The weather has been warming up a trifle, as has the Rhetoric Against Everything.  This, of course, is only to be expected as people become increasingly concerned about the deteriorating global situation.

Own or Be Owned, VI: Principles of Economic Justice

The theory of binary economics as a system for optimal and sustainable production and consumption of marketable goods and services is underpinned by three interdependent principles of economic justice:

Own or Be Owned, V: Basic Binary

In the "post-scarcity" theory developed by Kelso, "Binary" means "consisting of two parts." Kelso divided the factors of production into two all-inclusive categories — the human ("labor"), and the non-human ("capital"). The central tenet of binary economics is that there are two components to productive output and to income: (1) that generated by human labor, and (2) that generated by capital. Classical economic theory, on the other hand, regards all output and income to be derived from labor whose productivity is enhanced by capital.

Own or Be Owned, IV: The Abundant Economy

Two assumptions that many people take for granted is that “economic scarcity” means that human wants and needs can never, ever be satisfied, and that the only way to finance new capital formation is to reduce wants and needs in order to have the wherewithal to do so.

Own or Be Owned, III: The Abolition of Private Property

Having established that Milton Friedman, poster child for reasoned and polite debate in economics, had no response to binary economics, we probably should look at what binary economics responds to: the idea that underpins both capitalism (greed) and socialism (envy).  We refer, of course, to the slavery of past savings.

News from the Network, Vol. 6, No. 14

The stock market is “going crazy” again, down about 100 points the last time we looked.  This is good news for the gamblers.  Of course, going up 100 is also good for the gamblers.  They make money either way.

Own or Be Owned, II: Greed is Good?

As we saw in yesterday’s posting, the late, grate Milton Friedman was a past master at diverting attention away from questions he did not want to answer or, more likely, that he could not answer.  Like many economists, he seemed to have an extreme animus toward anyone who raised an issue he was unprepared to deal with.

Own or Be Owned, I: Milton Friedman, Master of Debate

There is a Just Third Way. Not just any third way. The problem is that Gates or Buffett, other well-intentioned thinkers across the ideological spectrum, including the UK advocates of a “third way,” have never taken it seriously.

Don't Confuse Economists with the Facts!

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Yesterday's Wall Street Journal carried a review of Federal Reserve Chairman Benjamin Bernanke's book, The Federal Reserve and the Financial Crisis.  While we agree that the book probably doesn't address anything substantive, the review made a few errors itself.  Naturally, we couldn't let that go by. . . .

April Fool! Neo-Distributism

Somehow it seems appropriate to post something about real distributism after going through a rather monumental slush pile of neo- this, that, and the other thing.  After all, having been going through all the illogic that seems to characterize modern academia, politics, and Great Pumpkinists, a little common sense can be very refreshing.