If You Have a Free Moment . . .

We love it when we get intelligent questions that we can answer without too much trouble.  In addition to the fact that it proves somebody is actually reading this blog, answering the question saves us the trouble of trying to think of something to write about.  We were therefore delighted to receive the following question a few weeks ago:

News from the Network, Vol. 6, No. 30

And the winner is . . .?  Actually, in this case, it’s easier to pick the losers: We, the People of the United States.  At stake is the next chairmanship of the Federal Reserve.  Since none of the candidates appears to have the faintest idea what a central bank is supposed to do, the best we can hope for is the same financial floundering to which we’ve been subjected since the New Deal.

The REAL Dismal Science, IV: Democracy v. Plutocracy

By the early 19^th century, it appeared that democracy had triumphed over divine right.  The French Revolution had been a misstep, of course, but you can’t make an omelet without breaking eggs, and boys will be boys.  Besides, you know . . . foreigners.  And even the French had some good in them, e.g., Alexis de Tocqueville and what many authorities consider the first great work in sociology, Democracy in America.

The REAL Dismal Science, III: The Philosophers of the Absolutist State

In the previous posting we mentioned that Walter Bagehot, whose economic theories were a strong influence on John Maynard Keynes (whose own theories have pretty much wrecked the global economy), wrote favorably of the political theories of the totalitarian philosopher Thomas Hobbes.

The REAL Dismal Science, II: Reason v. Divine Right

Democracy is based on the principle that people have the inherent right to rule themselves, and thus to select the form of government and society best suited to their needs, as long as it respects fundamental human rights.  How a specific government or society meets that requirement is up to the people who come together to organize it, and can take many forms, but the substance must remain, or the system is unjust.

The REAL Dismal Science, I: The Economics of Unreality

People often think of economics as “the dismal science.”  In the opinion of some authorities, this is due to the discredited theories of the Reverend Thomas Malthus that, nevertheless, became entrenched as economic orthodoxy.  This was primarily because Malthus told the wealthy and powerful — and those who depended on them — precisely what they wanted to hear.

News from the Network, Vol. 6, No. 29

The CESJ team has been preparing to go to Cleveland tomorrow for a retreat.  We’ll hopefully report on the retreat next week, but this week our time has been taken up with preparing for it.  A number of interesting sessions have been planned and a number of meetings scheduled that could result in significant advances — but we won’t know until the end of the retreat how well things went.  Unlike some reporters who see the future and it works, we have to wait until the events we’re reporting actually happen.

Free Advice to a Couple of Teenagers

This is a little complicated, but it is critically important in all of human thought.  Bishop Fulton Sheen translated a passage of Aquinas referring to the effects of abandoning the first principle of reason as committing "mental suicide" after stressing the fact that the first principle of reason is the strongest and clearest thing "the Angelic Doctor" wrote about.  G. K. Chesterton called forgetting or ignoring the first principle of reason "the assassination of Thomism."

Some (More) Questions About Future Savings

We recently received two questions about the monetary theory underlying binary economics, especially as it would be applied in Capital Homesteading.  The first question was whether future savings are any more secure than what backs the currency now.  The second question was how future growth actually backs a currency.

The Keynesian Money Multiplier Again

In college economics courses we all learn that under fractional reserve banking, banks can create money out of nothing.  This allows private interests to circumvent the government’s monopoly on money creation, and thus to control the economy.

Another Note on Say’s Law of Markets

Most authorities and experts have a partial understanding of “Say’s Law of Markets” and its application in the “real bills doctrine” from the perspective of past savings (the present value of past reductions in consumption) instead of future savings (the present value of future increases in production).  This causes a little confusion when we attempt to explain the monetary and fiscal reforms of Capital Homesteading.

News from the Network, Vol. 6, No. 28

As is usual in the summer, this has been something of a slow week for news . . . unless you’re big on Hollywood fluff (which is pretty much the same as Washington fluff these days).  On the Just Third Way front, matters in Cleveland seem to be chugging along, which ought to please Drew Carey because, after all, Cleveland Rocks.

The Federal Reserve Yet Again

If we keep raising the issue of the Federal Reserve, it’s because other people keep insisting on two things that we know are incorrect.  One, the federal government is the sole legal money creator in the United States.  Two, central banks were invented to finance government.

The Dictatorship of Money, XIV: Why is Property Important?

This brings us to the sticking point.  Why has every pope since Leo XIII (and a number before him, such as John XXII in 1329) stressed the importance of private property?  Clearly it is not income, or (at least) income alone.  The whole concept of the just wage, while frequently misunderstood and even more frequently misapplied, addresses the problem of an adequate and secure income, even if mistaken for false charity and used in the short term as an expedient.

The Dictatorship of Money, XIII: The Theory of Socialism

In the tenth and eleventh postings in this series, we demonstrated that capitalism is based on two premises, one true, and one false.  In today’s posting we will show that socialism is also based on two premises, both of which are false.  This is, in fact, why the Catholic Church condemns socialism, while it “only” criticizes capitalism.

The Dictatorship of Money, XII: Faith v. Reason

The claim that both capitalism and socialism are based on opinion — faith — is easily proved.  As we have demonstrated countless times on this blog, both capitalism and socialism rely on the demonstrably false premise that the only way to finance new capital formation is to cut consumption and accumulate money savings; financing for all new capital is presumed to come out of the present value of production that was withheld from consumption.

News from the Network, Vol. 6, No. 27

The Dow shot up this morning more than a hundred points in the first few minutes of trading . . . and as of this writing has been losing ground . . . regaining it . . . losing it again . . . ever since.  In other words, business as usual.  The rapid rise is presumably in response to a favorable jobs report for June, while the drop is presumably due to the situation in Egypt.  It does raise an issue about the widespread belief that the stock market is a leading economic indicator, but what can you do?

For one thing, support an initiative like the proposal to make a counteroffer to the Chinese purchase of Smithfield Foods, Inc., as we explain in our first news item this week:

The Dictatorship of Money, XI: The Theory of Capitalism: Use

In yesterday’s posting we learned that capitalist theory is correct in asserting the absolute character of the right to be an owner, i.e., “title.”  We also learned that being correct in such an important matter is not enough.  We must also be right for the right reason.

The Dictatorship of Money, X: The Theory of Capitalism: Title

By the time Pope Leo XIII issued Rerum Novarum advocating private property in capital for everyone (§ 46), “private property” had come to mean different things for the rich, and for the non-rich in America.  This was largely due to two circumstances.

Response to Professor Shakespeare, III: Shakespeare in His Own Words

As promised last Thursday, here is the full, unedited text of Professor Rodney Shakespeare’s comments on CESJ’s response to him that we sent out June 17, 2013.  This was cut and pasted directly from the e-mail as Professor Shakespeare sent it.  The only changes are the removal of some extraneous spaces Professor Shakespeare seems to have added in the heat of composition:

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.