THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Friday, December 30, 2011

News from the Network, Vol. 4, No. 52

Things are shaping up well to make 2012 the Year of Capital Homesteading. A number of initiatives to reach prime movers have moved forward exceptionally well, and there has been an increasing level of media outreach. Mostly this has been on radio, with Norman Kurland getting several interviews on nearly a dozen different radio shows across the country, including Build Your Wealth, The Challenge, The Meshorn Daniels Show, and Tuesdays With Tormala, and even Michael Greaney appeared on Russell Williams's The Challenge out of Hartford, Connecticut and The Skip Mahaffey Show out of Tampa Bay, Florida.

As for other initiatives:

• Work is progressing on the web-based "Capital Homesteading Education and Marketing Campaign." Cartoonist Bert Dodson is working on how to present some rather esoteric ideas in picture form, while Dave Kelly is working on developing some scripts on the subjects, "Where's the Money Going to Come from?" and "The Joe Lunchbucket Story."

• Michael Cong has completed his work in Hawaii with the Japan-America Institute of Management Science in Honolulu. He received a high grade on his work, and reported that the professor sounded very interested in the Just Third Way. Michael is now ready to begin work on revising the Chinese translation of Curing World Poverty. We have completed our first run-through of the revision of the English language version, and expect to complete the next phase before the end of January.

• Monica W. has been wending her way through the non-profit and political bureaucratic labyrinth in Cleveland. She reported that she has been referred to Neighborhood Housing Services and the Thriving Community Institute. The issue was raised whether progress might pick up after the New Year when people are more prepared to focus on new ideas and solutions to old problems.

• CESJ obtained a DVD of some talks by Mortimer J. Adler and Charles Van Doren on "How to Read a Book." The DVD is available on the website of the Center for the Study of the Great Ideas, and is available for a $24.95 donation plus $5.00 shipping anywhere in the world. It is well worth the money, and will leave you nodding your head in agreement — and shaking your head at the condition of today's educational system. You might even pick up a few pointers on how to read a book.

• Russell Williams has been moving forward with arranging for a Summit on Economic Justice to take place in Waterbury, Connecticut, in the middle of January.

• We have received some endorsements for A Plea for Peasant Proprietors by William Thomas Thornton. Consider sending us your own endorsement, posting a review on Amazon or Barnes and Noble, or both.

• Bestselling author William Greider had a conversation this past week with Norman Kurland. They discussed the importance of dealing with the money and credit issue in light of the current global situation. Greider asked about the Just Third Way take on chartalism, or "Modern Monetary Theory."

• As of this morning, we have had visitors from 59 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Ireland, and Australia. People in Trinidad and Tobago, Russia, Germany, Australia, and Poland spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Orestes Brownson and Socialism, I: The Evil," "Aristotle on Private Property," and "Orestes Brownson and Socialism, II: The Civil War."

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.


Thursday, December 29, 2011

A Short Dissertation on Thomas Hobbes

Some time ago we posted a discussion on Thomas Hobbes's views on private property, relating it through Walter Bagehot to the economics of John Maynard Keynes. Somewhat to our surprise, the posting has, week after week, continued to be among the "top five" postings. Many visitors who read the posting on "Thomas Hobbes and Private Property" are, interestingly enough, from the former communist countries in eastern and central Europe.

Keeping that in mind, we thought we would take a look at what Mortimer Adler — the "Adler" of "Kelso and Adler" — thought about Hobbes, and if his assessment of the great defender of the divine right of kings matched ours. To begin, let's refresh our memories about what Hobbes said in Leviathan (1651) concerning what John Locke considered the cornerstone of a free society: private property. (Please excuse the archaic spelling, but we wanted to give you Hobbes's own words in Hobbes's own words.)

"Propriety Of A Subject Excludes Not The Dominion Of The Soveraign, But Onely Of Another Subject

"From whence we may collect, that the Propriety which a subject hath in his lands, consisteth in a right to exclude all other subjects from the use of them; and not to exclude their Soveraign, be it an Assembly, or a Monarch." (Leviathan, XXIV.)

"Attributing Of Absolute Propriety To The Subjects (XXIX)

"A Fifth doctrine, that tendeth to the Dissolution of a Common-wealth, is, "That every private man has an absolute Propriety in his Goods, such, as excludeth the Right of the Soveraign." Every man has indeed a Propriety that excludes the Right of every other Subject: And he has it onely from the Soveraign Power; without the protection whereof, every other man should have equall Right to the same. But if the Right of the Soveraign also be excluded, he cannot performe the office they have put him into; which is, to defend them both from forraign enemies, and from the injuries of one another; and consequently there is no longer a Common-wealth." (Leviathan, XXIX.)

Given this, what does Adler have to say? We took the following passage from the "Cooperative Individualism" website, from the article titled, "The Nature of Natural Law" by Mortimer Adler:

"You ask whether natural law is relevant to modern conditions. My answer is that if justice is still relevant, then natural law is. Indeed, interest in natural law has increased especially during the past half century, with its experience of the kind of positive laws which have been imposed by totalitarian regimes. On what grounds could a decent German citizen in Nazi times justify his opposition to the laws of the land? On private sentiments or merely personal opinion? Even purely inner resistance to iniquity must be rooted in firmer grounds. 'A law which is not just is a law in name only,' says Augustine. And Aquinas adds: 'Every human law has just so much of the nature of law as it is derived from the law of nature. But if in any point it departs from the law of nature, it is no longer a law but a perversion of the law.'

"The naturalists, as that name indicates, affirm the existence of natural justice, of natural and unalienable rights, of the natural moral law, and of valid prescriptive oughts that elicit our assent, both independently of and prior to the existence of positive law. The positivists deny all this and affirm the opposite. For them, the positive law - the man-made law of the state - provides the only prescriptive oughts that human beings are compelled to obey. According to them, nothing is just or unjust until it has been declared so by a command or prohibition of positive law. . . .

"The positivist view is recurrent in later centuries with the recurrence of later despotisms. It was expressed by the Roman jurisconsult, Ulpian, who, defending the absolutism of the Caesars, declared that whatever pleases the prince has the force of law. Still later, in the sixteenth century, the same view was set forth by another defender of absolute government, Thomas Hobbes, in 'The Leviathan'; and later, in the nineteenth century, by John Austin, in his 'Analytical Jurisprudence.'

"Neither Austin nor the twentieth-century legal positivists who follow him regard themselves as defenders of absolute government or despotism. That is what they are, however - perhaps not as explicitly as their predecessors, but by implication at least. The denial of natural rights, the natural moral law, and natural justice leads not only to the positivist conclusion that man made law alone determines what is just and unjust. It also leads to a corollary which inexorably attaches itself to that conclusion - 'that might makes right' - this is the very essence of absolute or despotic government."


Wednesday, December 28, 2011

Ron Paul and Creating Money

The other day the Washington Post (which has been running a series of articles on potential contenders to President Obama) did a piece on Ron Paul. Paul has made quite a name for himself by advocating various measures designed to "End the Fed" and turn the power over monetary policy back to Congress. As Paul has declared, "The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank." ("End the Fed," by Ron Paul)

Well . . . not according to Alexander Hamilton ("Opinion as to the Constitutionality of the Bank of the United States," 1791) and Justice John Marshall (McCulloch v. Maryland, 1819). According to the first Secretary of the Treasury and the fourth (and longest-serving) Chief Justice of the United States Supreme Court, Congress had and has every right to establish a private corporation and delegate public business to that corporation, particularly with respect to money and credit.

Whether Congress should do that, or whether the power has been misused or corrupted is a different question. What is beyond the shadow of a doubt is that the Federal Reserve is a fully legal and duly authorized private corporation that is charged with carrying out the functions of any other central bank. Even though we contend that the powers of the Federal Reserve have been misused and diverted to serve dubious political ends, the central bank of the United States fills a necessary role in the economy and the financial system. As it functions today, the Federal Reserve is subjected to a bad use of a very good thing.

The United States has, in fact, had some institution that filled the central banking role for most of its history. The longest period without a central bank was from 1837 to 1862, inclusive, following Andrew Jackson's "war" against the Second Bank of the United States and the passage of the National Bank Act of 1863. The National Bank system was badly designed and functioned mostly to make the rich richer while draining the country of liquidity available to farmers and small businesses. Had it not been for the Homestead Act, the United States would probably not have even the token small ownership it has today.

What we want to look at today, however, is not Ron Paul's shaky historical facts, but his dubious understanding of money and credit. Evidently as part of his campaign to undermine the Federal Reserve (as if others hadn't already beaten him to the punch), he wants to give the Federal Reserve some competition, and give private individuals the right to coin money. He has sponsored a bill to that effect, H.R. 1098, "The Free Competition in Currency Act of 2011."

From 1787 to 1863 many people believed that it was legal for U.S. citizens to strike their own coinage. Individual state governments could not issue coins, but private individuals and companies seemed to be okay. The federal government seems to have concurred — at least, there were some federal investigations of the Bechtlers, a family that owned a private mint and struck gold coins to the U.S. standard, and the business was not shut down. The Confederate States of America made the Bechtler's coinage legal tender. Moffat and Company became the San Francisco Assay Office, which later evolved into the San Francisco Mint, and Moffat's coins seem to have had a quasi-legal tender status, being accepted in payment of customs duties.

What Ron Paul evidently doesn't understand is that Federal Reserve notes and demand deposits are not the entire money supply. They are actually the smaller part of it. The bulk of the money supply is comprised of bills of exchange issued by private individuals and companies. As late as 2008, a crude calculation puts the amount of the money supply represented by bills of exchange at more than 60%.

The vast majority of these bills fall into the category of "real bills," that is, they are backed by the general creditworthiness of the drawer. They are money once they have been accepted. Every individual or business that has purchased anything on credit has "drawn a bill," and — given that it was accepted — has thereby created money. American commerce, industry and agriculture could not possibly function if people couldn't create money in this fashion. The productive economy — or what's left of it — runs largely on bills of exchange. Most new capital is financed using some form of a bill of exchange, and repaid out of the future profits of the capital itself. Credit used to purchase capital that pays for itself is a good use of a good thing.

And, yes, you too create money every time you purchase something on credit. The problem is that, while consumer bills of exchange, most often drawn by using a credit card, are real bills (obtaining credit that you know you can't repay is a crime) consumer bills are a bad use of a very good thing.

The trick is not to give citizens the right to do what they are already doing, and to their own detriment. If Ron Paul wants to help America and put the economy and the financial system back on a solid footing, he should sponsor legislation that would help citizens create money to purchase capital that pays for itself, not consumer goods.

Such a proposal is the Capital Homestead Act. It contains a number of provisions that Ron Paul should find very attractive — such as no more monetizing of government debt by the Federal Reserve. Instead, return the Federal Reserve to its original purpose of providing credit to the private sector by discounting eligible industrial, commercial and agricultural paper.

And one more thing: give each citizen the right to participate in the ownership of all new capital financed in this way. Permit each and every child, woman, and man to create money to finance new capital formation. This would end the debt-backed currency we now have, and replace it with an asset-backed currency.


Tuesday, December 27, 2011

A Taxing Problem, V: "I'll Have My Bond!"

As you might recall from yesterday's posting, our critic proposed a tax system that, at first glance, appears to be more straightforward than the Capital Homesteading reforms: "I was thinking of two federal taxes, one a national sales tax to be used just to pay off the national debt, and the other a flat income tax with few or no exemptions or deductions but NO tax on interest income from savings or income from retirement investments, whether private (since it was already taxed) or a Social Security check." The critic expressed the concern "that if by law some citizens are excluded from paying any tax at all, what direct interest do they have in a prudent use of the taxes collected? None."

Isn't it easy to answer your own question, giving the person you are chastising no opportunity to respond (usually by running away before he . . . okay, I can answer)?  Unfortunately for the critic, this chastisee has a blog, and, with nearly thirty years' experience as a CPA and a specialist in the administration of qualified retirement plans, happens to know a little something about both tax theory and practice, as well as the treatment of retirement contributions and income for tax purposes.

For an explanation of how citizens who pay no taxes would have an interest in good government, we need look no further than William Cobbett in his History of the Protestant Reformation in England and Ireland (1827). Cobbett was commenting on the fact that the "Catholic forebears" of the then-modern English had not, as a usual thing, paid taxes, the costs of government being met out of revenues of public lands:

"You may twist the word freedom as long as you please, but at last it comes to quiet enjoyment of your own property, or it comes to nothing. Why do men want any of those things that are called political rights and privileges? Why do they, for instance, want to vote at elections for members of parliament? Oh! because they shall then have an influence over the conduct of those members. And of what use is that? Oh! then they will prevent the members from doing wrong. What wrong? Why, imposing taxes that ought not to be paid. That is all; that is the use, and the only use, of any right or privilege that men in general can have." A History of the Protestant Reformation in England and Ireland, 1827, §456.

Thus, the citizens, through the desire not to pay taxes, will keep a close watch on their elected representatives and the level of expenditure. In any event, Capital Homesteading is intended to put every citizen in the position of being able to have sufficient income to be able to pay taxes, not maintain the current system that taxes in order to control, and gives back as charity what was taken unjustly — and thus unnecessarily — maintaining people in a permanent condition of dependency, as Alexis de Tocqueville pointed out in his Memoir on Pauperism.

Yes, every citizen is responsible for contributing to the cost of government, just as every member of a family is obliged to contribute to the family, and a member of a religion to the support of that religion — but only to the extent that he or she is not thereby deprived of what he or she needs to live on, i.e., what is required to meet common domestic needs adequately (Quadragesimo Anno, § 71 — the reference is to wages, but as Leo XIII pointed out, property income — all income from productive activity, in fact — is simply "wages" under another form, Rerum Novarum, § 5). Otherwise we find ourselves in the ludicrous position of taking money away from people in order to give it back, thereby substituting a false charity for true justice.

Our critic made a couple of factual errors as well. For one, the critic asserted that interest income on savings is somehow taxed twice. On the contrary, interest a company or bank pays on its obligations or savings accounts is deductible as a legitimate business expense; it is not an after-tax distribution, and thus is not an instance of "double taxation" under the current system. We would shift corporate finance to non-interest bearing bills of exchange based on the general creditworthiness of the drawer, limiting interest to charges on accumulations of existing savings lent out. The charges on bills would be limited to the discount or rediscount (a reflection of the bill's present value), and the risk premium, which would be shifted to purchase capital credit insurance and reinsurance in lieu of traditional collateral.

For another, the critic claimed that income from private retirement investments "was already taxed." Really? The critic has evidently never heard of the IRA (that's "Individual Retirement Account" for our readers outside the U.S.) and other qualified retirement plans, both defined benefit and defined contribution, the contributions to which are (within limits) funded with pre-tax, not after-tax dollars. This lack of knowledge is, frankly, inexcusable, either for someone proposing sweeping tax reform or who is in the legislature. In addition to a basic unfamiliarity with the principles of taxation (efficiency, understandability, equity, and benefit), the critic clearly has no idea what the U.S. tax code says about retirement income, or why the present Social Security system is almost universally misunderstood.

To avoid the double tax on corporate profits and to encourage full dividend payout (thereby increasing personal taxable income), we would make all dividends tax deductible at the corporate level, but fully taxable at the individual level above the exemption. With all financing for new capital formation coming out of non-interest bearing "pure credit" loans, the necessity for accumulating money savings — and restricting consumption — to finance new capital investment (and, yes, "create jobs") would be obviated.

While all current promises must be met, in the future we would make Social Security and other entitlements need-based after meeting those promises, with the bulk of retirement income coming from assets in a tax-deferred Capital Homestead Account, financed by discounting bills of exchange at commercial banks, and rediscounting at the Federal Reserve. As such, Social Security or other welfare would not be taxed, as "need" would be defined as someone having an income less than the exemption.

A national sales tax, like all ad valorem taxes, is both strongly regressive, and therefore unjust, falling most heavily on those least able to pay, and adds the "double whammy" in that it is a dollar-for-dollar reduction in the very consumption that justifies new capital formation and thus job creation. An income tax inhibits new investment by reducing the incentive to invest by taking a percentage of profits, but ad valorem taxes take away the very reason to invest in the first place by diverting 100% of each dollar spent on the tax away from consumption.  If you're trying to rebuild your economy, ad valorem taxes are a really, really bad idea.

As Harold Moulton explained in The Formation of Capital (1935), the demand for new capital is derived from consumer demand. Anything, therefore (such as the Keynesian insistence that new capital can only be financed out of reductions in consumption), that decreases consumption negates the very capital investment it finances. This is the "economic dilemma," unavoidable under Keynesian assumptions, yet non-existent under the Just Third Way reforms embodied in Capital Homesteading.


Monday, December 26, 2011

A Taxing Problem, IV: Widows and Orphans

We seem to have upset some people with the tax reforms proposed under Capital Homesteading, specifically the generous exemption from taxation of an amount sufficient to meet common domestic needs adequately. According to a recent critic, "My concern is that if by law some citizens are excluded from paying any tax at all, what direct interest do they have in a prudent use of the taxes collected? None." Thus (in the opinion of the critic) everyone — regardless of his or her ability to pay! — must pay something in taxes.

Our critic justified this position by citing a private interpretation of the Bible: "If I am looking back correctly, there were two taxes imposed in ancient Israel, a head or temple tax (the same for rich and poor alike) and the ten percent tax now called a tithe, which, while collected by the Levitical priests was nevertheless used to run the governmental operations of Israel road building, defense, helping the poor, etc., that is until the people demanded a King who would become rapacious in his taxing appetite."

Our critic proposed a tax system that, at first glance, appears to be more straightforward than the Capital Homesteading reforms: "I was thinking of two federal taxes, one a national sales tax to be used just to pay off the national debt, and the other a flat income tax with few or no exemptions or deductions but NO tax on interest income from savings or income from retirement investments, whether private (since it was already taxed) or a Social Security check."

To begin, even to address the critic's comments, we have to set aside the fact that you can't prove anything from the Bible that you don't already believe. It is a book written by believers for believers. Something is in the Bible because the people who put it together believed it to be true; it is not true because it is in the Bible. Thus, the only thing you can prove by the fact that something is in the Bible is the fact that something is in the Bible.

For example, the story that Abraham was apparently commanded to sacrifice his son does not prove that God commands us to sacrifice our children to Him. The story could be relating an instance where Abraham thought he was carrying out what seemed to be God's command (private interpretation again), but was stopped at the last minute by direct divine intervention from doing something stupid. We don't even know as a provable fact that the story is not allegorical — there are no "witnesses" or evidence other than the story itself. We need competent teaching authority and common sense, not an interested motive, to understand the story.

With that in mind, let's first take a look at the head or temple tax. This was a silver half-shekel (about two day's wages) per adult Jewish male per year, with (somewhat ironically) the shekel of the Phoenician city state of Tyre bearing the image of a pagan god named as the "official" temple coin accepted in payment. Thus, contrary to our critic's assertion, the temple tax was not the same for rich and poor alike. Women and girls did not pay it at all, while only males over the age of thirteen paid, being considered adults.

Further, if we read the Bible closely, we realize that the temple "tax" was actually a voluntary contribution. If you wanted to be considered an adult Jewish male, you paid the "tax," otherwise, not. An exemption for those who simply did not have the money or who did not want to be considered "official" Jews is implied in a passage in the Gospel of Matthew — and Matthew, as a tax collector, knew the system. In Matthew 17:24-27, someone asks Peter if Jesus pays the temple "tax."

The question would not make sense if the temple "tribute" (as it has it in the King James Version) did not have a voluntary aspect, that is, if it was a true tax in the modern meaning of the term. With respect to only being levied on those able to pay, it is important to note that neither Peter nor Jesus paid the tax until after the question was asked — they didn't have the money.

In response to the question, Jesus instructs Peter to go fishing, and says that in the mouth of the fish Peter catches he will find a coin sufficient to pay for both. The clear implication, of course, is that to avoid scandal ("Lest we should offend them" — KJV) Peter and Jesus pay, even though (as we necessarily infer from the very fact of the question) they are not obligated to do so based on their inability to pay, and (for Jesus) the added reason that, as the Son of God, He is not liable in any event for paying taxes to Himself.

As for the tithe — the widow, the orphan, the poor and the stranger were objects of special concern to the God of the Jews. In Exodus 22:21-24, we find the clear statement, "Thou shalt neither vex a stranger, nor oppress him: for ye were strangers in the land of Egypt. Ye shall not afflict any widow, or fatherless child. If thou afflict them in any wise, and they cry at all unto Me, I will surely hear their cry, and My wrath shall wax hot, and I will kill you with the sword; and your wives shall be widows, and your children fatherless."

The tithe for the support of the poor, the widow, and the orphan was levied every third year of a five-year cycle, not annually (Deuteronomy 26:12-14). Otherwise, the tithe was to be used to purchase goods for human consumption in the Temple and for personal use at religious festivals (Deuteronomy 14:22-27). Forcing the poor, the widow, and the orphan to pay a tax when they cannot reasonably be expected to pay would, by most people, be considered "afflicting" them in a very important "wise." Taxing them incurs the "hot wrath" of God, and death by the sword, with your own wife and children put into the position of being oppressed by others as you yourself have oppressed the widow, the orphan, and the stranger. The God of Abraham, Isaac, and Jacob is clearly prepared to take strong action against such injustice, for "He doth execute the judgment of the fatherless and widow, and loveth the stranger, in giving him food and raiment" (Deuteronomy 10:18).

If the tithe was supposed to be imposed on everyone, regardless of ability to pay, then the Israelites — and their God — were hypocrites. This is because the tithe was, in part, intended to provide for the support of the poor, the widow and the orphan (Deuteronomy 14:28-29). Taxing the poor, the widow and the orphan for the support of the poor, the widow and the orphan would thus be a case of robbing Peter to pay Peter, that is, taking money from someone in order to give it back!

Further, if we take the "benefit principle" as our sole rule of taxation (as our critic evidently did) distorting it all out of proportion to common sense, even political expedience, we have to ignore the fact that the God of the Jews specifically commanded that widows and orphans were to be included in the benefits of being members of the community, even though they obviously did not pay the tithe. By the explicit command of God Himself they were not to be excluded from the festivities celebrating the Feasts of the Lord (Deuteronomy 16:11, 14), but were to be considered full members of the community, not second-class citizens.

Thus, if we look at the Law of Moses closely, we see exemptions for the poor, the widow, the orphan and the stranger. It is, and always was unjust to take from people what they need to meet their material needs adequately, forcing them to rely on private charity or a return from the State of what is properly theirs, coercing them into a condition of dependency.

As Pius XI explained in Quadragesimo Anno, § 49, quoting Leo XIII in Rerum Novarum, "it is grossly unjust for a State to exhaust private wealth through the weight of imposts and taxes." How much more unjust could it be, then, not only to "exhaust private wealth" of those who have it so they have nothing left on which to live, but to tax away what people don't even have in the first place!

Tomorrow we will conclude our response to our critic and address the rest of the concerns raised.


Friday, December 23, 2011

News from the Network, Vol. 4, No. 51

This past week we came across another reference to the "Panic of 1825" and the fact that one of the contributing factors to the panic was the issuance of securities by the Republic of Poyais in South America . . . a country that never existed except in the mind of "Sir" Gregor MacGregor, who claimed to have been created Cacique (Prince) of Poyais by the native king George Frederic Augustus I of the Miskito Tribe, an indigenous people in what is now Honduras.

"His Highness" (as he called himself), in what has been described as "the most audacious fraud in history" (David Sinclair, The Land That Never Was. Cambridge, Massachusetts: Da Capo Press, 2003), printed currency (Poyais Dollars), emitted bills of credit, and made land grants and accepted investors. Similar to what had happened with the "South Sea Bubble" a century before, nearly three hundred colonists were lured to the Mosquito Coast, largely on the strength of a book by "Thomas Strangeways, Knight of the Green Cross" (a probable pseudonym of Gregor MacGregor), Sketch of the Mosquito Shore, published in Edinburgh in 1822. There they found nothing as described in the book. Fewer than fifty returned alive to England.

The ensuing "Panic of 1825" is considered the first financial downturn caused by the new phenomenon of "economic cycles." From the perspective provided by binary economics, however, "economic cycles" themselves have two causes.

One, there had been a shift away from Say's Law of Markets and its application in the Banking Principle and the real bills doctrine. The backing of the currency shifted from private sector hard assets represented by bills of exchange, to government securities (bills of credit) representing the present value of future tax collections — from assets to debt. This broke the essential link between the money supply ("demand") and production. Governments began believing they could create or reduce demand simply by manipulating the currency, a demonstrably false belief that has affected monetary and fiscal policy down to the present day.

As we have seen in the current global economic crisis, however, when a government that issues bills of credit finds itself unable to collect enough in taxes to make good on its promises, the currency falls in value, and can become worthless. In that case, the bills are termed "fictitious bills." When the government that issues bills of credit doesn't even exist (as in the case of the "Republic of Poyais"), the worthlessness of the currency should be even more obvious.

Two, as capital ownership becomes concentrated and technology advances, replacing human labor with capital in the production process, Say's Law ceases to function because income from capital goes to people who can't possibly spend it all on consumption, and are virtually "forced" to invest the excess in new capital formation. (Do not confuse this with Keynesian "forced savings," which is something different.) Production outstrips the capacity of people who own no capital to consume, resulting in the phenomenon of "economic cycles" as the economy readjusts for what superficially comes across as "over-production."

Thus, in 1825 matters came to a head and caused the first "economic cycle." Both the financial system and the distribution of ownership combined to ensure that Say's Law and its applications would not function. Capital Homesteading reforms address these issues, as we continue to work for the adoption of a Capital Homestead Act in 2012:

• CESJ had its December Executive Committee meeting on Wednesday. If you wish to be notified of future meetings, please send an e-mail to dbrohawn [at] cesj [dot] org. You can participate by telephone as well as attend in person.

• Guy S. out in Iowa has been sending information on Capital Homesteading to the Buddy Roemer campaign Facebook page. He asks that anyone who has names or contacts of politicians who should know about the Just Third Way to send him information via e-mail, or have it forwarded from CESJ.

• Russell Williams has obtained space for an Economic Justice Summit to take place in Waterbury, Connecticut, in January. Norman Kurland may attend as a speaker.

• Monica and Jackie in Cleveland, and now their brother Mark, have been moving things forward there. Great interest has been expressed by Empowering and Strengthening Ohio People ("ESOP") in the Citizens Land Bank and the Homeowners Equity Corporation.

• We received the footage of Norman Kurland that had not been included in the movie Thrive. Rowland B. is editing it as a series of short segments. Norm's interviews include many things that a number of reviewers have found lacking in the final version of the film, e.g., financially feasible options for monetary and tax reform that can advance rapid economic growth in a manner consistent with the four pillars of an economically just society and the three principles of economic justice that will enable people to thrive materially and spiritually.

• Bert Dodson, the award-winning cartoonist, is working on putting together 40 segments on the Just Third Way and Capital Homesteading, in which "Joe Lunchbucket" asks questions about Capital Homesteading and how it will benefit him, the environment, and the country (and the world).

• Norman Kurland has been interviewed on the Meshorn Daniels radio show out of Louisville, Kentucky, and on Tuesdays with Tormala out of Grand Rapids, Michigan. Both hosts have been very receptive and open to the Just Third Way message.

• Russell Williams reports that his radio show, The Challenge out of Hartford, Connecticut, has been getting a larger audience, and there has been a lot of "buzz" about the show.

• Dawn B. says that the CESJ website upgrade is proceeding apace. We have hit some important milestones in the process.

• The revision of Curing World Poverty is on track. We have made it nearly halfway through the first step, which is highlighting possible sections for rewrite, making minor editorial changes, and suggesting alternate text.

• Publicity for CESJ's latest publication, William Thornton's A Plea for Peasant Proprietors (1848, 1874, 2011) is starting to make some headway. Cover thumbnails have been posted on both Amazon U.S., Amazon U.K., and Barnes and Noble, where the book can be ordered retail. Information on bulk wholesale quantities (10 or more copies) at a 20% discount off the cover price is available on the book's website, where you can also download a review copy in .pdf. Send the website link around to your network, and post it on your LinkedIn and Facebook pages as well as tweeting it. People are also encouraged to post (positive) reviews on Amazon and Barnes and Noble, particularly if you purchase the book from one of those outlets (they give priority to actual customers).

• Dave Kelly testified before a House subcommittee regarding the return of the land in Harris Neck, Georgia, to its rightful owners. Dave reported that the hearing went very well.

• An article on the Just Third Way by Norman Kurland is appearing in The ABCs of Harmony put together by Dr. Leo Semashko and published by the Global Harmony Association.

• Larry Walker has been contributing some good comments to the blog postings on taxation and cross-posting them on his blog.  You might want to make a visit to his blog, "Natural Born Conservative."

• If Leisa B. in Günzburg am Rhein is reading this — you're not getting e-mails because your allotted capacity has been filled and they're being returned to sender. Empty a few folders and compact them. Otherwise you will continue to miss our immortal writings.

• As of this morning, we have had visitors from 65 different countries and 53 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Ireland, and Bulgaria. People in Trinidad and Tobago, Russia, Australia, Germany, and Argentina spent the most average time on the blog. The most popular postings this past week were "Thomas Hobbes on Private Property," "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Orestes Brownson and Socialism, I: The Evil," "Aristotle on Private Property," and "Orestes Brownson and Socialism, II: The Civil War."

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.


Thursday, December 22, 2011

A Taxing Problem, III: Where Did We Go Wrong?

Looking at what has happened to the Federal Reserve and the income tax, we have to wonder what is the root cause of the misuse of these institutions? Where, in other words, did we go wrong?

Trying to be objective, we think it is in how people understand private property and contract, and thus money, credit, banking, and finance. Of these, the (mis)understanding of money appears to be the most immediate problem. Not that they others are unimportant, but the vortex, as it were, seems to swirl around money and credit — according to Henry Dunning Macleod, two forms of the same thing.

Money is legally defined as anything that is accepted in settlement of a debt. It is a contract involving "offer" and "acceptance." It is not, as some theorists declare, a claim issued by the State on the general wealth of society. That is socialism, and is rooted in the understanding of taxation and private property found in Thomas Hobbes's virtual manual for totalitarian government, Leviathan, that denied (abolished) private property:

"A Fifth doctrine, that tendeth to the Dissolution of a Common-wealth, is, 'That every private man has an absolute Propriety in his Goods; such, as excludeth the Right of the Soveraign.' Every man has indeed a Propriety that excludes the Right of every other Subject: And he has it onely from the Soveraign Power; without the protection whereof, every other man should have equall Right to the same. But if the Right of the Soveraign also be excluded, he cannot performe the office they have put him into; which is, to defend them both from forraign enemies, and from the injuries of one another; and consequently there is no longer a Common-wealth." (Thomas Hobbes, Leviathan, Ch. XXIX.)

That is, the king — the State — is the ultimate owner of everything in the State. That being the case, taxes are not a grant from a free citizenry, but a "retaking" of what the State was pleased to allow the citizens in the first place: "[T]he Kings word, is sufficient to take any thing from any subject, when there is need; and . . . the King is Judge of that need." (Ibid., Ch. XX.)

It is interesting to note that Hobbes influenced Walter Bagehot (who, incidentally, had enormous contempt for the United States), while Keynes, the virtual demigod of today's monetary and fiscal policy, revered Bagehot.

The fact is, despite the fixed beliefs of modern academics, it is possible to create money to finance new capital formation without first having to cut consumption and accumulate money savings. Keynes did not understand basic bookkeeping or the accounting equation, assets = liabilities + owners equity. Keynes failed to realize that the "multipliers" developed from his theories, especially the "money multiplier," are complete fantasy.

The money multiplier relies on counting the same asset multiple times and shifting ownership around indiscriminately to meet political ends. The Keynesian money multiplier embodies a fatal error that is obvious to anyone who understands double entry bookkeeping or (better) money. That is, the money multiplier theory assumes that checks drawn on one account remain on deposit in another account without ever being presented for payment!

Anyone who has ever balanced a bank statement knows that this is not the case. Checks clear, decreasing the amount in the account and thus the amount of money available, or they remain outstanding, in which case you still can't spend the money because it has already been spent. Drawing checks against money in an account that has already had checks drawn against it is called "issuing bad checks." It is a civil or criminal offense, depending on the amount of the fraudulent check you issued and the jurisdiction in which you committed the offense. It is what Henry Thornton called a "fictitious bill," that is, money with nothing behind it.

The Keynesian money multiplier, however, assumes as a matter of course that banks are engaged in a vast criminal conspiracy by creating money backed by nothing more than checks drawn against money that doesn't exist. (We never claimed that the Keynesian theory made sense — but it's in all the textbooks.) Today's academic economists and politicians dismiss as ludicrous the actual case, that commercial banks create money by accepting bills of exchange and issuing promissory notes that back the demand deposits.

Thus, if we accept today's standard assumptions about money and credit, there is no way to create money for Capital Homesteading so that ordinary people can become owners of capital without first having to cut consumption and accumulate money savings. If we reject the standard assumption, however, and use a little common sense along with some basic bookkeeping, the way is clear for a more rational monetary system than the debt-backed Leviathan that has kept the world locked into the slavery of past savings.

CESJ's Pro-Life economic agenda, for which we make the case in Supporting Life (2010) takes all this into account, reorienting the economy to conform to the natural law-based three principles of economic justice, 1) Participation, 2) Distribution and 3) Harmony ("feedback" or "social justice"), and the four pillars of an economically just society:

1. A limited economic role for the State,

2. Free and open markets as the best means for determining just wages, just prices, and just profits,

3. Restoration of the rights of private property, especially in corporate and other business equity, and

4. Widespread direct ownership of capital, individually or in free association with others.

In short, to require everyone to pay some tax, regardless whether they have the means or ability to pay, is to force anyone without property — and thus power — into a condition of dependency on the State . . . and keep in mind that "condition of dependency" was, prior to the Civil War, a euphemism for chattel slavery.


Wednesday, December 21, 2011

"Marriage Chances Rise With Your Salary"

A "CBS Moneywatch" story that appeared today on Yahoo! news is yet another "dog bites man" revelation. According to the article, "Marriage Chances Rise With Your Salary," a recent study by the Pew Research Center found that the percentage of Americans who are married is at an all-time low, and shows signs of dropping even further.

This is because real incomes have been falling. People in general — even the relatively large percentage which claims they want to be married — are leery of committing themselves. Marriage is an expensive proposition in an economy in which most people are constrained to rely on wages for their sole or predominant form of income. Children especially are a serious drain on finances when both common sense and the legal system inhibit or prevent them from contributing to the family by selling their labor, and they don't own capital to make up for the lack of wage income.

Thus, the fact that marriage is in decline is hardly surprising. As William Thomas Thornton pointed out in Over-Population and Its Remedy (1846) and again in A Plea for Peasant Proprietors (1848, 1874, 2011), only the very poor, those with nothing to lose, marry at the drop of a hat — or handkerchief, as obsolete slang put it. The moment someone has something to lose, it becomes a matter of greatest importance whom you marry and whether it will either maintain your condition in life or improve it. In uncertain economic times, marriage is often delayed or simply avoided altogether in favor of euphemistic "less formal arrangements" or (for those worried about ethics and morality) a chaste single life.

The story only cited statistics back to 1960 (72 percent married) and noted that, today, it is down to 51 percent. We have a hunch, though, that the decline — at least the reasons for it — began not in the 1960s, but in the 1890s. Why?

It was then that the Panic of 1893 and the ensuing Great Depression of 1893-1898 revealed serious flaws in the American economy. The opportunity for the majority of Americans to acquire capital had effectively disappeared with the end of the "free" land under the Homestead Act.

It is not that a majority of Americans were able to take advantage of the Act. Relatively speaking, few did — or could. That is not the important point here. It was the mere fact that the wage system had competition in the form of the opportunity to acquire landed capital on easy terms that kept wages high. Someone who was truly dissatisfied with wage employment could always go west and take land. As the land was taken, however, competition diminished, and wages began falling. This is consistent with the observations of William Cobbett in The Emigrant's Guide (1829, 2010) and Alexis de Tocqueville in Democracy in America (1835, 1840):

"I shall take for example that branch of productive industry which is still at the present day the most generally followed in France, and in almost all the countries of the world — I mean the cultivation of the soil. In France most of those who labor for hire in agriculture, are themselves owners of certain plots of ground, which just enable them to subsist without working for anyone else. When these laborers come to offer their services to a neighboring landowner or farmer, if he refuses them a certain rate of wages, they retire to their own small property and await another opportunity." (Alexis de Tocqueville, "Influence of Democracy on Wages," Democracy in America, Volume II.)

Widespread capital ownership — or the threat of it that would reduce the number of available workers — is sufficient incentive for employers to keep wages high enough to ensure that they have enough workers.

With the end of the "free" land under the Homestead Act, however, the proletarization of the American people accelerated, and the financial basis of domestic society (marriage) began to degenerate as labor began to decline in value relative to capital in the production process. The government tried to reverse or ameliorate the effects of lack of capital ownership by expanding welfare, labor legislation, and so on, but did not address the underlying cause of the problem: lack of access to the means of acquiring and possessing private property in capital, whether agricultural, commercial, or industrial: capital credit.

The proletarization of the average person is a necessary corollary to the wage system imposed by the concentration of capital ownership in both capitalism and socialism. This, in turn, is a consequence of the methods of corporate finance — or, at least, what people believe about methods of corporate finance. The reality is something very different.

Current belief about how new capital formation is financed is that consumption must be reduced or restricted in order to accumulate money savings before investing. Obviously, this requires that whoever is reducing consumption in order to save be able to cut consumption and save. Since capital is responsible for the bulk of production of marketable goods and services, and since the income from capital goes by natural right to the owner of the capital, under this assumption, as a general rule only those who already own capital have the capacity to own capital.

People who own no capital receive no capital income. As the value of labor declines relative to capital, people who rely on labor alone for their income do not receive enough from selling their labor to meet their needs. Spouses have to find wage system jobs, then take additional jobs, go into debt, or take State assistance in order to make ends meet.

To make matters worse, as technology advances and becomes increasingly expensive, only those owners of capital whose consumption expenses are negligible in comparison to their capital income can afford the new capital. Capital owners who use their capital income for consumption instead of reinvestment become, in the Keynesian phrase, "functionless investors," and must be eliminated from the economy. Keynes called this "the euthanasia of the rentier."

To try and ensure that non-owners receive enough income, socialism changes the definition of property from a natural right, to prudential matter. That is, in order to correct the abuses of capitalism and make certain that everybody presumably gets what he or she needs to live on, the State takes effective or outright ownership of capital and decides who gets what.

A good analysis of this process is found in Dr. Goetz Briefs's study, The Proletariat: A Challenge to Western Civilization, 1937. Like other students of Father Heinrich Pesch, S.J., members of the Königwinterkreis discussion group, Dr. Briefs recognized the critical importance of widespread capital ownership for maintaining essential human dignity. Unfortunately, Dr. Briefs — like almost everyone else — was unable to come up with a solution.

The solution, however, has been staring people in the face ever since the reinvention of commercial banking in the 16th century, and the invention of central banking toward the end of the 17th. The fact is, as Dr. Harold Moulton demonstrated in The Formation of Capital (1935), his alternative to the monetary and fiscal policy of the Keynesian New Deal, capital in a technologically advanced economy is not typically financed by cutting consumption and accumulating money savings.

Instead, what happens is that somebody who wants to finance new capital comes up with a feasible plan, and draws up a contract. This contract is called a "bill of exchange." The drawer either offers the contract to people who have what the drawer needs to form the new capital, or offers the contract to a commercial bank. Assuming that whoever is offered the contract accepts it, it becomes money. (This is why a contract offered to and accepted by anyone or anything that is not a bank is called a "merchant's" or "trade" acceptance, and a contract that is offered to and accepted by a bank is called a "banker's" acceptance.)

Bills of exchange are drawn on the "general creditworthiness" of the drawer. That means the ability of the drawer to make good on the promise in the contract when it falls due and is presented for redemption by the holder in due course. If a drawer is expected to produce marketable goods and services with the capital he or she finances by drawing bills of exchange, his or her credit is good and people accept the bills as money. (And, of course, if the drawer is not expected to produce marketable goods and services, his or her credit is bad, and no one accepts the bills.)

It is thus possible — even most efficient — to finance new capital formation out of what you can produce in the future, rather than what you withheld from consumption in the past. Financing for new capital can be linked directly to the present value of the expected future production, not whatever you managed to refrain from consuming.

Not only does this break the virtual monopoly that present owners of capital have on ownership of future capital, it also shows how people without savings or capital can become owners of capital. Taking advantage of this breakthrough in understanding, Louis Kelso invented the Employee Stock Ownership Plan and the whole theory of expanded capital ownership. This provided the basis for CESJ's Capital Homesteading proposal — which gets us to the whole point of this posting.

People are not getting married in part because they don't make enough money from wage income. As technology continues to advance and labor continues to fall in value relative to technology in the production process, even in many cases replacing labor completely, only two solutions are possible . . . and, of those two, only one is feasible.

Socialism can continue to advance, and governments can continue trying to even things out by redistributing existing wealth through the tax system or monetary and fiscal policy by inflating the currency. As the current global debt crisis has proved beyond a reasonable doubt, this doesn't work.

The alternative is to adopt Capital Homesteading as a genuinely Pro-Life economic agenda, as proposed in the book Supporting Life. Only in this way can people gain sufficient income to be able to marry if they so choose, and the institution of marriage removed from the social endangered species list.


Tuesday, December 20, 2011

"On Usury and Other Dishonest Profit"

Last week or so (it might have been two weeks ago) we came across a posting in a LinkedIn group to the effect that Pope Benedict XIV's 1746 teaching, Vix Pervenit ("On Usury and Other Dishonest Profit") "proved" — consistent with the poster's interpretation of the vaguely cited work of the solidarist Father Heinrich Pesch, S.J. — that all interest is forbidden by Catholic social teaching. Since the posting verged at times on the incoherent, we ignored it, although we were briefly tempted to respond.

Yesterday, however, we got a request from the "owner" of the Catholic Financial Professionals LinkedIn group (not where the posting appeared) to give our opinion on this understanding of Vix Pervenit. He had evidently come across the same or a similar posting, and thought that some discussion on the subject in a group that at least knew the fundamentals of money, credit, banking and finance might be more useful than the broad condemnation issued by people unfamiliar with the subject.

The main problem with condemnation is that Father Pesch's economics — and the social teachings of the Catholic Church, as well as Judaism and Islam — is based on Aristotelian philosophy . . . and Aristotle did not condemn all interest as usury.

Here's the thing. Discussion on Vix Pervenit pops up every couple of years, especially when economic conditions take a downturn. The problem is that most people lack the framework to understand what the document says. This is due to the general decline in understanding of Aristotelian/Thomism, especially with respect to private property, contract, and thus money and credit.

We have the claim that Vix Pervenit "proved" that all interest is usury, and therefore dishonest. On the contrary, "interest" — which comes from "ownership interest" — is, in classical economics, the profit due to the owner of capital. Consistent with the classical division of the factors of production into land, labor, and capital, "rent" is the profit for the use of land, and "wages" are the profits accruing to labor.

Consequently, to claim that all interest is usury and therefore dishonest is the same as saying that all profit from capital is dishonest — which we know is not the case, or the natural right of private property would be completely meaningless. "Property" is not the thing owned, but the natural right to be an owner, absolute and inherent in each human person, and the bundle of socially determined and necessarily limited rights that define the exercise of property within a specific society.

An important right of property is the right to receive the fruits of ownership — the "use" or the "usufruct." This means that the owner of a thing has a right to control the use of the thing, and to receive the benefit of its use, whether directly in the form of whatever the thing is used to produce, or indirectly by receiving the income generated by what is produced. If an owner lends a thing to be used by another, the owner is entitled to a share of the profits that result from the use of the thing — though not all, just a market-determined rate representing the owner's pro rata contribution to production by allowing the use of his or her capital.

Thus (avoiding the long argument showing the linkage between money and property), if someone has accumulated savings in the form of money, and lends the money to another to purchase capital or otherwise engage in an activity designed to produce a marketable good or service, the owner of the savings is, in moral philosophy, a partner of the borrower, and is entitled to share in the profits — and suffer the losses — resulting from the investment. This share is called "interest," and is a legitimate right of property.

It happens all too frequently, however, that investments do not pay off. Also, before the reinvention of commercial banking in the 16th century and the ability to monetize the present value of future production, which financed the Industrial Revolution, borrowing for investment (i.e., capital formation) was relatively rare. Most borrowing was for consumption, not investment.

Neither failed investments nor borrowing for consumption generate a profit. In that case, no profit is due to the lender. More, for a failed investment, the lender may even lose the principal lent, while for a loan for consumption, the lender is due in justice only what was lent. If the lender still insists on taking a profit in that case, he or she commits an injustice. This taking of a profit when no profit has been justly earned is called "usury," for by means of it, a lender of money exacts what he or she has not earned — because nothing has been earned. The profit taken is dishonestly gained.

Vix Pervenit was issued in the mid-18th century soon after the invention of central banking made commercial banking more sound, and thus an important factor in the economic growth that characterized the period and stimulated invention and expansion of commerce and industry. Unfortunately, the human tendency to try and get something for nothing led many people to manipulate the new financial institutions and contracts to circumvent traditional teachings on usury and take a profit at every opportunity, whether or not a profit was made.

Vix Pervenit was issued to clarify Church teaching on the difference between honest interest (profit) and dishonest interest in light of the advances that had been made in finance. This accounts, in part, for the extreme complexity, even confusing nature of the document for the modern reader.

Adding to the difficulty of understanding it is the fact that the document assumed as a given that all investment and spending is financed out of existing accumulations of savings. That is not, in fact, the case. Commercial banking — the oldest type of banking, dating back to the dawn of civilization — has a special function. A commercial bank is defined as a financial institution that takes deposits, makes loans, and issues promissory notes. A promissory note is an obligation that the bank issues when accepting a "bill of exchange." A bill of exchange is an offer of the present value of future marketable goods and services. It becomes "money" — a contract — when accepted.

Because a bill of exchange is not based on past savings (that is, savings already accumulated by cutting consumption), but on future savings (increases in production in the future), a lender, be it a bank or another business or individual who accepts a bill of exchange, is not due interest. Instead, the lender is due a fee for accepting the bill, based on the present value of whatever is to be delivered in the future, and a risk premium based on the creditworthiness of the drawer of the bill. This "discount rate" — which usually includes the risk premium — is the difference between the face value of the bill and its present value — again, not an interest rate because it is not based on a share of profits.

Thus, Vix Pervenit tried to address a system based on both past and future savings, but from within a framework that assumed that all loans came out of past savings. Nevertheless, the principles hold true, even if understanding them and applying them properly calls for a deeper analysis and understanding than the teaching is usually accorded by the simplistic modern commentator.


Monday, December 19, 2011

A Taxing Problem, II: What Happened to the Federal Reserve?

Last week we had a few things to say about taxation. Today we have a few more. Mostly today's posting has to do with the way the tax system has been used for purposes other than revenue generation — and the Federal Reserve has been used to provide money for government instead of the private sector, effectively handing over the key to the "money machine" to the State, which is the last place it should be.

To take up the slack and permit unaccountable spending by the federal government, the Federal Reserve has been hijacked from its original and legitimate mission to provide liquidity for private sector investment by rediscounting eligible paper for qualified commercial, industrial, and agricultural capital projects (vide Alexander Hamilton's Opinion as to the Constitutionality of the Bank of the United States, 1791; and the previously-noted McCulloch v. Maryland, 1819), and diverted to funding government by accepting bills of credit that, given a strict interpretation of the Constitution, may be unconstitutional, as it exceeds the specific regulatory, not creative, power granted under the enumerated powers.

We see the tragic results of this "new philosophy" all around us. Government debt has virtually destroyed Europe and is endangering the United States and Japan, making serious inroads on our natural, inalienable rights to life, liberty (freedom of association/contract), and property. Forcing people into dependency on the State has made it much easier to coerce people into accepting programs that they would normally find morally repugnant, with "welfare blackmail" ensuring that the rest give in for the sake of the promised State benefits. Further, because the tax system has been manipulated to meet goals other than mere raising of revenue to defray legitimate expenditures, the IRC has grown so complicated that no single person, even group, can understand it. Even if CESJ's proposed Capital Homestead reforms were not manifestly in accordance with justice, the reforms could be justified on the grounds of expedience for the sake of increased efficiency and decreased cost of compliance and maintaining the system.

In our opinion, the underlying cause of the massive social and economic chaos we see around us is the absolute insistence by academics and policymakers that it is impossible to finance new capital formation without first cutting consumption and accumulating money savings. This displays an egregious misunderstanding of money, credit, banking, finance, and private property. It also effectively abolishes private property by re-defining it and making serious and unjustifiable inroads on its exercise.


Friday, December 16, 2011

News from the Network, Vol. 4, No. 50

Yesterday the Associated Press released a story to the effect that, according to the U. S. Census Bureau, half of all Americans are either living in poverty, or on the verge. On reading the story there seemed to be a little creative manipulation of statistics (so what else is new?), but that's not the point. The fact that such a story would even be published in America about Americans says a great deal more than if every word in the report was absolutely, factually true. People are either already in despair, or getting very close to it.

So — what are we doing? How about doing everything we can to advance the Just Third Way:

• We have a new website up for William Thomas Thornton's A Plea for Peasant Proprietors. You can order individual copies of the book there from Amazon and Barnes and Noble, or bulk copies (10 or more) direct from the publisher (that's us). You can also download a free review copy in .pdf, for which we can, on request, provide a .jpg of the cover for reviews to be published. There are three typos in the .pdf that were corrected before going to the printer, and we're betting that you can only find one. Your prize, if you can identify all three, is a gold star.

• We have also established a website for the new novels by Robert Hugh Benson that were recently released by Universal Values Media. It's not quite finished yet, but you can still order the novels there from Amazon.

• We are negotiating co-authoring a book with an official at a prominent Catholic university on the significance of "the City Upon a Hill" as an exemplar symbol for the importance of the "new order" that America represented in the world, and the possibility of restoring it through the Just Third Way.

• Additional suggestions have come in regarding reviving the work of Orestes Brownson as one of the threads leading to the Just Third Way. We do not have sufficient resources at present for such a project, but any serious leads on grants or fellowships would be appreciated.

• Norman Kurland met with presidential hopeful Ross "Rocky" Anderson, who will be running for office as an independent. Anderson sounded very positive about much of what he heard, although he has reserved judgment on the Pro-Life economic agenda of the American Revolutionary Party.

• Norman Kurland also met with Charles Peters, head of the Global Program of Service for Peace. After talking with Norm, Peters expressed interest in investigating the application of Just Third Way in North Korea, Indonesia, Africa, and Mongolia, among other regions and countries.

• As of this morning, we have had visitors from 62 different countries and 52 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Bulgaria, and India. People in Trinidad and Tobago, Australia, Russia, Argentina and Venezuela spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Orestes Brownson and Socialism, I: The Evil," "Thomas Hobbes on Private Property," "Aristotle on Private Property," and "Orestes Brownson and Socialism, II: The Civil War."

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.


Thursday, December 15, 2011

A Taxing Problem, I: What is Tax Justice?

As they say, there are two things certain in life: death and taxes. At least the former only comes once. The latter is a perennial problem. It also manages to bring in discussions on politics and religion, two of the three subjects you are not supposed to discuss in polite company. (The third subject is, at least according to Linus Van Pelt, the Great Pumpkin.)

Anyway, as a follow-up to yesterday's posting (which was itself a follow-up to the posting of the day-before-yesterday) we thought we'd address some of the concerns expressed by our faithful readers in greater depth. As one of them commented, in words edited for publication,

"I see that Capital Homesteading has a floor that excludes some persons (lower income) from paying income taxes for the general support of the national government. I am curious, since everyone pays sales taxes or payroll taxes for unemployment, Social Security and Medicare, why would not the demands of equal justice require that all pay some support of the general government, say a straight tax on income?"

As we have seen, a basic principle of just taxation is that people are taxed according to their ability to pay, it being considered unjust to demand that people pay taxes when their resources are inadequate to cover their own subsistence or that of their dependents. This principle of civil society is also reflected in the teachings of the Catholic Church, which has as a precept that people are to contribute to the support of their pastors according to their means. It is considered unjust in civil, religious or domestic society to be forced to contribute, either as taxes or as a donation, anything in excess of one's ability to contribute; neither human positive law nor moral philosophy requires that we do that which is impossible.

The tax proposals under Capital Homesteading take this basic principle as fundamental to a just social order. The present system, that requires people to pay taxes in such amounts as to force them to accept government assistance to make up the difference is patently unjust, as well as obviously contrary to common sense. It is interesting to note that, before the current economic downturn, the employee portion of Social Security and Medicare taxes on the median income was approximately equal to the amount of per capita non-mortgage revolving consumer debt. In other words, the government takes away income from private consumption, which the consumer then makes up by borrowing to keep the economy limping along — wage earners were thus paying into Social Security from the first dollar of wage income, and making up the difference by using credit cards.

We propose the abolition of all taxes (especially the ad valorem ["value added"] sales taxes, tariffs, and payroll taxes that are strongly regressive) except for an income tax, and a single rate on all income from whatever source derived above a meaningful exemption sufficient to, as Pope Pius XI put it, meet common domestic needs adequately. Otherwise, all that is being done is that the State takes away in taxes what it then returns as welfare, making recipients into dependents on the State, or (as the Supreme Court put it in another context), turning nominally independent adults into mere creatures of the State (Pierce v. Society of Sisters, 1925). All sales taxes, payroll taxes, property taxes, and so on, would be merged into this single rate. If the exemption is adequate, this would result in a "typical" family of four paying no taxes on the first $100,000 of aggregate income, and an effective, if moderate progressive rate above that. There would be no special rates for property incomes, whether dividends or capital gains, with the exception that capital gains should be inflation-indexed.

The basic fact is that, until the New Deal, few Americans paid any taxes at all, except for property taxes and whatever resulted from the increase in the price of consumer goods due to the tariff. As Dr. Harold G. Moulton related in The New Philosophy of Public Debt (1943), the primacy of Keynesian economics convinced policy makers that taxation was unnecessary for raising revenue to defray government expenditures (it being believed that the public debt could safely rise to at least twice GNP (!), according to Alvin Hansen, "the American Keynes"), but that taxation was still useful as a means of "social engineering."

To be cynical, the income tax ceased to be used primarily for funding government, and was changed into 1) a means for controlling people (as Justice John Marshall noted in McCulloch v. Maryland, "the power to tax is the power to destroy"), 2) a means of encouraging saving by the rich for reinvestment in new capital, further concentrating property and power and widening the wealth gap, and, in last place, 3) revenue.


Wednesday, December 14, 2011

Tax Heresy

Heresy is an ugly word. It's usually used as a curse to describe someone who disagrees with you. However ugly it may be, however, it can be an accurate term. We're not philologists here, but we think we read somewhere some time ago that the word "heresy" comes from a Greek word meaning to pick out. Thus, what a heretic does is "pick out" a legitimate and true doctrine, and exaggerates it beyond all rational bounds, without reference to other, equally true doctrines.

We have no idea if that derivation of "heresy" is correct, but it certainly fits an increasingly popular interpretation of an otherwise valid principle of taxation, the "benefit principle." The reason for raising this is that yesterday's posting on the need to build solidarity in the workplace somehow excited the ire of an occasional reader.

What seemed to stick in this person's craw was not anything in the posting itself, but a new principle of taxation that has developed over the past couple of years. The new principle is that everyone, regardless of how much he or she receives in income, must pay something in taxes, for everyone is responsible for contributing to the common good of whatever society of which he or she is a member. The problem is that the benefit principle cannot be taken in isolation from the other three principles.

To explain, the four principles of just taxation (and you can find these just about anywhere; the Wikipedia is a good source) are:

1. Efficiency: A tax system should raise enough revenue so that government projects can be adequately funded, without burdening the taxpayer too much, becoming a disincentive for investment and work.

2. Understandability: The system should not be incomprehensible to ordinary citizens, nor should it appear unjust or unnecessarily complex.

3. Equitability: Taxation should be governed by people's ability to pay. Wealthier individuals or businesses with greater incomes should pay more. Those with lower incomes should pay comparatively less.

4. Benefit Principle: Those that use a publicly provided service should pay for it. (Conflicts in principle often arise between this and the equitability principle.)

We can leave for another day the discussion as to how well the U.S. tax system conforms to these principles (any bets on number 2?). We'll stick to pure theory today.

When conflicts arise, common sense should rule. Thus, if someone cannot pay a tax without diminishing what he or she requires to meet common domestic needs adequately for him- or herself and his or her dependents, then that person should not be required to pay ("It is grossly unjust for a State to exhaust private wealth through the weight of imposts and taxes." — Pius XI, Quadragesimo Anno, § 49). Otherwise, the State would be forcing that person into a condition of dependency: slavery. Principle 3 trumps principle 4.

Further, it is also unjust to require that someone do that which is impossible. If someone does not make enough income to meet the ordinary expenses of living, he or she certainly cannot pay taxes. This new insistence that everybody pay, regardless of his or her ability to pay, bears a chilling resemblance to the "Poor Laws" as they operated in England in the early 19th century, in which the rich were ostensibly being taxed for the support of the (deserving) poor . . . and to meet the tax demands, simply raised costs to their tenants and employees.

The poor were, in effect, taxed for the support of the poor, with (of course) a rake-off for administrative costs, such as the Parish Officer, the Beadle, the Roundsman, etc., etc. The system did have the somewhat dubious benefit of providing Charles Dickens with some of his more hellish descriptions of life as a permanent dependent of the State in a Workhouse, and of supplying Karl Marx with massive data for his analysis of the capitalist system, described in Das Kapital.

The Poor Laws didn't do the poor much good, though.


Tuesday, December 13, 2011

"The Market Must Never Neglect Solidarity"

Pope Benedict XVI recently (December 10, 2011) gave a talk to representatives of the Italian Federation of Cooperative Credit Banks, and the Confederation of Italian Cooperatives. Particularly in light of the fact that 2011 marks the 120th anniversary of Rerum Novarum, "On Labor and Capital," the pope's remarks focused on the need to build solidarity in cooperative economic endeavor.

As His Holiness commented in the talk reported by the Vatican Information Service (VIS), "[Rerum Novarum] favored the fruitful presence of Catholics in Italian society through the promotion of cooperative and mutual societies, the development of social enterprises and many other public works characterized by various forms of participation and self-management. The purpose of such activity has always been to provide material support for people and constant attention to families, drawing inspiration from the Magisterium of the Church."

As the pope explained, "The heart of cooperative efforts has always lain in the search for harmony between the individual and community dimensions. This is a concrete expression of the complementarity and subsidiarity which Church social doctrine has always sought to promote between citizens and the State, a balance between safeguarding the rights of the individual and promoting the common good, in order to develop a local economy capable of responding to community needs. Cooperative activities are likewise characterized by their great concern for solidarity, while still respecting the due autonomy of the individual."

Perhaps it is the fault of the writer of the article, but we find no mention in the report of how the great concern for solidarity is to be realized in concrete terms. This is puzzling when we consider the fact that Leo XIII was quite clear on the means to be used to achieve the desired goal: "We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners." (Rerum Novarum, § 46) As the pope went on to explain,

"Many excellent results will follow from this; and, first of all, property will certainly become more equitably divided. For, the result of civil change and revolution has been to divide cities into two classes separated by a wide chasm. On the one side there is the party which holds power because it holds wealth; which has in its grasp the whole of labor and trade; which manipulates for its own benefit and its own purposes all the sources of supply, and which is not without influence even in the administration of the commonwealth. On the other side there is the needy and powerless multitude, sick and sore in spirit and ever ready for disturbance. If working people can be encouraged to look forward to obtaining a share in the land, the consequence will be that the gulf between vast wealth and sheer poverty will be bridged over, and the respective classes will be brought nearer to one another. A further consequence will result in the great abundance of the fruits of the earth. Men always work harder and more readily when they work on that which belongs to them; nay, they learn to love the very soil that yields in response to the labor of their hands, not only food to eat, but an abundance of good things for themselves and those that are dear to them. That such a spirit of willing labor would add to the produce of the earth and to the wealth of the community is self evident. And a third advantage would spring from this: men would cling to the country in which they were born, for no one would exchange his country for a foreign land if his own afforded him the means of living a decent and happy life. These three important benefits, however, can be reckoned on only provided that a man's means be not drained and exhausted by excessive taxation. The right to possess private property is derived from nature, not from man; and the State has the right to control its use in the interests of the public good alone, but by no means to absorb it altogether. The State would therefore be unjust and cruel if under the name of taxation it were to deprive the private owner of more than is fair." (Rerum Novarum, § 47.)

This is a critical issue, especially when addressing members of cooperative associations — cooperatives being vehicles for sharing ownership, based on defined and discrete ownership stakes. The question then becomes, "Why is private property, specifically ownership of capital, evidently being ignored?" This is truly baffling. Ownership — control — is essential to building solidarity, and the importance of private property in capital, whether landed, industrial, or commercial, is stressed almost to the point of redundancy in Rerum Novarum.

We can make a guess, however. It may be that the reason for this apparent sidelining of private property in capital is the belief (primarily inculcated by Keynesian economics, but present in Monetarist/Chicago and Austrian as well) that it is (allegedly) impossible to finance new capital formation without first cutting consumption and accumulating money savings.

Given that demonstrably false assumption (see The Formation of Capital, by Harold G. Moulton), the necessary (and equally false) conclusion is drawn that ownership must be concentrated in order to allow the rich or the State (i.e., the capitalists or the socialists) to control — own — with the end of saving to finance new capital. It follows that small ownership must be eliminated from the economy; as Keynes put it, there must be a "euthanasia of the rentier, of the functionless investor" who consumes income from capital instead of reinvesting it. (John Maynard Keynes, The General Theory of Employment, Interest, and Money, 1936, VI,24.ii.)

In this understanding, property may be "permitted" nominally and private individuals still retain formal title, but control — actual title — vested in the State. (General Theory, VI.24.iii; also, Henry George, Progress and Poverty. New York: The Robert Schalkenbach Foundation, 1935, 406; Henry George, The Condition of Labor: An Open Letter to Pope Leo XIII, 1891; "Wunderlich, the National Socialist Conception of Landed Property," 12 Social Research 60 at 61, 66, 72 (1945).) There is no real understanding of the fact that "property" is not the thing owned, but 1) the natural — absolute and unlimited — right each person has to be an owner, and 2) the limited and socially determined exercise of what may be owned and how it may be used.

We have not confirmed this, but we were told that the pope's chief economic adviser is a Keynesian. The orientation is thus away from small ownership — from meaningful ownership at all, in fact — and toward the redefinition of private property to allow effective State ownership by substituting the wrong sort of emphasis on solidarity. The implication is that it is possible to build solidarity without the traditional understanding of private property, or of life and liberty.

On the contrary, property empowers people, "power" being strictly defined as the "ability for doing," vesting the owner with effective social identity. As Daniel Webster pointed out, "power naturally and necessarily follows property." Without property, then (as Aristotle explained, property is essential to leading a life of virtue, "the good life"), it becomes difficult-to-impossible to exercise other natural rights such as life and liberty (freedom of association/contract), and thus build solidarity, an essential component of social virtue and thus a just social order. As William Thomas Thornton (author of A Plea for Peasant Proprietors, 1848, 1874) observed in On Labor, Its Wrongful Claims and Rightful Dues (1869, 1870),

"For mistrust and dislike or indifference on the one side, and for envy and jealousy on the other, would be substituted something of that fellow-feeling which can scarcely help growing up between those who, in serving themselves, are helping each other. With those laborers who had taken shares, some sympathy with capital would tincture the old headlong passion in favor of labor. With those who had not yet become shareholders the possibility of their becoming so subsequently would have a like effect." (William Thomas Thornton, On Labour: Its Wrongful Claims and Rightful Dues, Its Actual Present and Possible Future, Second Edition. London: Macmillan and Company, 1870, 394.)

The pope has clearly been getting some bad advice, but fortunately — being protected, in Catholic belief, by the Holy Spirit from teaching error — has not acted on it. What these "evil counselors" seem to be feeding him (inadvertently, we hope) is, just as clearly, contrary to the natural law on which Catholic social teaching is based. The problem is that, unless he gets some good advice, especially regarding the financing of new capital formation without relying on cutting consumption, the pope can't give property its proper place — as Dorothy Day liked to quote Peter Maurin, "Property is proper to man."

We're getting excellent teachings from the Vatican, but they are incomplete. This gives the modernists and the socialists grounds for claiming that the definition of property has changed, and that it is no longer a natural right . . . if it ever was. It gives the capitalists grounds for maintaining their position as well, although with slightly — and that's a very slight "slightly" — more justification than the socialists.

It is, of course, impossible that the definition of private property can change, regardless of Keynes's theorizing that the absolutist State has the power to "re-edit the dictionary." (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4.)

It is irrelevant whether Keynes said that the State can alter substantial nature — definition — at will, especially God's Nature, on which the natural law is based. It can't be done. As Benjamin Watkins Leigh explained, "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." (Benjamin Watkins Leigh, in the Virginia Convention, quoted by Salvador Aranet in Bayanikasan: The Effective Democracy For All. Manila, Philippines: AIA Press, 1976, 57-58.)

In orthodox Christian, Jewish and Islamic thought, the natural law is based on God's Nature, self-realized in His Intellect, not the will of the State, however powerful. Nor is the natural law based on some atheist's or modernist's private interpretation of God's Will, whether found in the Bible, the encyclicals, the Communist Manifesto, Keynesian economics, or the back of a cereal box. The teachings of the Catholic Church on private property cannot change, or God is not God, and the Catholic Church, contrary to its own claims, is not the true church established by Christ.

It is consequently the duty, not only of faithful Catholics, but all people of good will, to request clarification on this point from the Holy See. It is also the responsibility of each person to provide the pope — or any other leader, whether political, religious, or social — with the information he needs to make an informed decision about these matters, unfiltered through current economic and financial fallacies, especially those of Lord Keynes.


Monday, December 12, 2011

The Neverending Story

In an all-too-common headline early this afternoon, CNBC proclaimed the dog-bites-man non-event of the year: "Why Europe Has Investors Running Scared — Again." As the article declared, "The search for a silver bullet to fix Europe's debt mess again has come up empty." Evidently the leaden projectile of trying to spend your way out of the money pit by piling on yet more unproductive government "sovereign debt" has missed the target just once too often. You'd think after shooting themselves in the foot so many times they'd start to catch on.

Maybe they should open their eyes or widen their search. For years CESJ has been giving them the "silver bullet" — actually an entire armory — that has the potential to turn the current disaster around in 18 to 24 months.  And it's not as if Louis Kelso and Mortimer Adler weren't saying the same thing for decades before that.  We think our proposal  can solve the problem for Europe, the U.S., and Japan.

We could even go back to the Stone Age before Keynesian economics got its stranglehold on the global economy and give them the work of Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952. To try and counter the debt-insanity of the New Deal (ably dissected in The New Philosophy of Public Debt, 1943), Moulton laid the groundwork for the "pure credit" financing proposal of Louis Kelso's "expanded ownership revolution." Moulton published his findings in The Formation of Capital (1935), and they can download the foreword to CESJ's edition of this economic classic right here from the CESJ website, absolutely free, no charge, gratis. They can even get a free copy of Capital Homesteading for Every Citizen.  Reading free books doesn't cost a cent.

Want to go even earlier? We could (and will) mention our republication of William Thomas Thornton's 1848 classic proposal to end the Great Famine in Ireland (1846-1852), A Plea for Peasant Proprietors. The Great Famine was a disaster that, at the minimum, resulted in a million deaths. The global debt crisis has the potential to cause even more harm — and not just in one small country, either. Want to go back to Aristotle? We could, you know. These ideas go pretty far back.

And still the "experts" keep lamenting that they have no idea what to do. Perhaps it's time they shut their mouths and opened their eyes and ears.


Friday, December 9, 2011

News from the Network, Vol. 4, No. 49

This has been a very interesting week — in a good way. (We can't help but recall the Chinese curse, "May you live in interesting times.") On the one hand, more people are expressing dissatisfaction with the current state of affairs and most still fail to grasp that the Just Third Way is not based on redistribution of current wealth in one form or another.

On the other hand, they are asking. If enough people ask, some will have that "eureka!" breakthrough and truly understand that we are not talking about merely tweaking the current system. Nor are we saying that the current system must be destroyed before any good can be done. That would be contrary to both social and individual justice.

No, we are talking about restructuring the system (social justice) so that our institutions can make certain that each is rendered what each is due (individual justice). To achieve that goal, here's what we've been doing:

• Norman Kurland was again interviewed on Tuesday on "Tuesdays with Tormala," a radio show out of Grand Rapids, Michigan. A former City Commissioner, the host Rick Tormala cleaned up the Assessor's Office, saved the 911 system, prevented waste to the tune of a couple million dollars, and describes himself as not being on the usual "right" to "left" spectrum — like most Americans puzzled by the antics of politicians intent on "business as usual" when it is clearly not only inadequate, but on a runaway train in exactly the opposite direction from where we should be going.

• Norman Kurland was also interviewed on Wednesday on "The Focus Show" out of Louisville, Kentucky. Needless to say, both interviews covered aspects of the Just Third Way, something the country and the world need to hear before we get too diverted by politics as usual as the election draws near.

• Also on Wednesday the CESJ Core Group had a luncheon meeting with an official from a major U.S. university. The official was very interested in the correlation between the Just Third Way and the renewal of the vision of America held by the colonists and Founding Fathers. As readers of this blog are aware, the just-ended series on Orestes Brownson (The American Republic, 1865) and Theodore Roosevelt ("The New Nationalism," 1910) analyzed the thought of these two pivotal figures in American intellectual history from the perspective of the Just Third Way, and did not find them wanting.

• CESJ is pleased to announce that the Economic Justice Media edition of William Thomas Thornton's classic proposal for ending the Great Famine in Ireland (1846-1852), A Plea for Peasant Proprietors, first published in 1848, revised in 1874, is now available for bulk purchase, and will soon be available in individual copies. Our edition features a new foreword, annotation, and appendices explaining certain aspects of 19th century Irish politics that might be unfamiliar to some people, as well as elements of the Just Third Way. Ordering information for wholesale purchases can be found on the special website for the book.

• Norman Kurland had an article accepted for a new publication from the "Global Harmony Association" headed by Dr. Leo Semashko. We will follow up and keep you posted when the book becomes available.

• As of this morning, we have had visitors from 60 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Bulgaria, Canada and the Philippines. People in Trinidad and Tobago, Australia, Russia, Venezuela and Poland spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Orestes Brownson and Socialism, I: The Evil," "Thomas Hobbes on Private Property," "Orestes Brownson and Socialism, II: The Civil War," and "Orestes Brownson and Socialism, III: The Constitution."

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.