Senate leaders, both Democrat and Republican, have said they intend to bring a revised version of the so-called Bailout Bill to a vote Wednesday night, October 1st.

According to an updated report from the pro-globalist news service, the Senate version will have only minor or even cosmetic changes to it. But it will still give over $700 billion in taxpayer's money to the Wall Street elites. And it will still give the Secretary of the Treasury's office unaccountable power to regulate the economy.

And according to the Washington-based news site The Hill, the House will be limiting the amount of e-mails voters can send to their Congressmen. It is claimed that this will reduce strain on their computer systems, so as to avoid crashing it. Others believe this is only to limit the amount of protest e-mails Congressmen are getting over the horrendous Bailout Bill. I tend to believe the latter is the case.

Finally, according to the left-wing news website What Really Happened, thousands of people protested against the Bailout Bill outside Wall Street itself! But as is typical with the globalist so-called "mainstream media", they barely gave it notice at all. And this in their own home neighborhood as well.

In other words, the elitists in government and media and both "mainstream parties" are doing all they can to destroy the economy in the disguise of saving it. Centralizing economic power into ever fewer hands, as well as rescuing the Wall Street bankers from the effects of their greed, violates the basic tenets of Distributism.

So that being the case, if you can send an e-mail to your Senator and it gets through, do so. Otherwise, call your Senator's office on Wednesday. Be brief and be polite, for it is a given their offices will be - we hope - flooded with calls. Tell your Senators to vote "NO" on this version of the Bailout Bill.

By the grace of Almighty God and your calls and e-mails, we won in the House. We can do the same in the Senate too. But we need your prayers, e-mails and phone calls. This bill must be stopped cold. There can be no surrender to the globalists and the Wall Street elitists.

Tell your Senators to vote "NO" on the so-called Bailout Bill. Remember, the next vote on this is Wednesday night, October 1st.

Don't let the bad guys win! Thank you.



Monday afternoon, the US House barely voted to reject the so-called Bailout Bill. The opposition got 228 votes, while the supporters got 205.

Thanks to you and millions of others like you across the country, this economic travesty was defeated.


The same Congressional leaders who crafted this nightmare have vowed to work on it again, and bring it to a vote this Thursday. They will still try to give over $700 billion to the Wall Street bankers, freely admitting that this injection of money may not fix things.

So we have won a victory but the war still goes on.

From the pro-globalist CNN, Libertarian economist Jeffrey A. Miron wrote an opinion piece that says the banks in trouble should declare bankruptcy, not get a government bailout. You may read his piece HERE.

And former Republican presidential candidate Dr. Ron Paul's Campaign For Liberty website has the lists of those who voted for and against. Go HERE to find out how your Congressman voted.

Friends and neighbors, we need to keep up the pressure to make sure Congress doesn't approve any giveaway of our hard-earned tax money to the Wall Street globalist elites. We urge you to tell your Congressmen to vote “NO” on any version of the so-called Bailout Bill.

In the meantime, let us thank God in His Mercy for this victory.


Negotiating with (Economic) Terrorists

I was in Chicago last Friday for a conference of the American Monetary Institute, so I only got to hear a bit of the financial news as I left the hotel room. The bit I heard, however, was extremely interesting. The reporters for CNBC, the financial network, were waxing indignant on two points: one, that capitalism was the greatest system in the world, and; two, Congress ought to pass the $700 billion bailout without delay and without modification. Now, one can make a defense of either of these two statements, but surely the combination should at least raise some questions. The combination of “get the gov't out of the market” and “get the gov't to bail-out the market” should, at a minimum, lead to some cognitive dissonance. But apparently not; the statements were offered without any hint of irony. Yet, if one believes in “free markets,” one might question the freedom of a market that requires such a great raid on the public purse.

As to whether capitalism is the greatest system, I couldn't say. One can only judge such things by looking at actual systems and their actual functioning. But nobody, in the entire history of the world, has ever seen a capitalist system for any sustained period of time. What attempts there were to establish such systems have always led, and that rather quickly, to economic chaos and social disorder. The history of capitalism is the history of government rescues of capitalism; the greater the capitalist power, the greater the use of government power to defend it and make it work. The accumulation of property and the accumulation of government power to defend that property go hand in hand. So the most recent request for the public funds to support private privilege are hardly surprising, at least to anyone who owns a history book.

What distinguishes the current bailout is not merely the size and scope, but the threat under which the money is being extracted. In our system, money is created by credit rather than by the production of goods and services. That is, money only exists when it is lent. The amazing thing about modern money is this: when you sign a note for a car of a home, or a credit slip for a hamburger, the money to buy the car, the home, or the hamburger does not exist until you sign the note. Money is called into being by the act of borrowing it. This power of creating money from notes has been granted to the banks, that is, to private entrepreneurs. But of course the banks have to find solvent borrowers who can pay them back, or otherwise the whole thing collapses. Just as it is doing right now. The poor are getting the blame for taking out mortgages they could not afford, but that is only a small fraction of the problem. The greater problem is that the banks and other institutions made loans for “derivatives,” which are complex bets on these and other loans, bets which magnified what would otherwise have been a manageable problem. The result is that the banks have lost all their capital, and they need to keep a fraction of what they lend on hand to continue making loans (this is called “fractional reserve banking.”)

Now the banks are in a position to make what amounts to a terrorist threat: give us all your money, or we will not make a single loan; you will not be able to sell a single car, house, or hamburger except for cash. Without surrendering to them our future, they will take away our present; hence we must make a great present to them of $700 billion (which everybody things will rise to perhaps double that amount). The President, the Fed, the Congress, and the candidates are all for surrendering to this economic terroism, the argument being that we have no other choice.

But is this correct? Banks go insolvent all the time, even if not all at the same time. But when they do go insolvent, there is a well-established procedure and some clear choices. The bank needs more capital, and the current owners can supply it, or they can sell off some assets at whatever they can get for them to raise new capital, or they can sell themselves, in whole or part, to new owners. But what the banks want the government to do is none of the above. They want the public to purchase their toxic paper, and purchase at well above its market value. In other words, they want the public to take the loss and the banks to keep the profit.

The current owners are unwilling or unable to supply the new capital, the banks' assets have little or no market value, and the banks do not want to take on new owners, even if such investors could be found. That is to say, the banks do not want to rely on market mechanisms to fix their problems. Too bad. But that being the case, I suggest that the government act as a market player in behalf of the people and use the established market mechanisms. We'll buy the paper, at market price. Or we'll buy the bank, also at market price, and then supply the capital to keep them in business. This would, of course, amount to a nationalization of the banks, but only of such banks that wanted to be. Those who can find another solution in the free market are free to do so, much as Goldman Sachs did with Warren Buffet.

Once we own the banks, we can make prudential decisions about what to do with the bad loans, whether to extend them, renegotiate them, or to liquidate them. We can also decide what the CEO's pay will be. We can decide anything we want. We will be the owners. Further, it would return the money creation power to where it belongs: to the public. We would finally gain control of our own finances, and would not have to pay interest (now amounting to $430 billion/year) to the banks and foreign governments to get the money we could ourselves create at no interest.

The original plan was three pages and gave Henry Paulson dictatorial powers over the economy with no review of his actions by the courts or any other public body. It was the greatest giveaway to the people who plundered the public in the history of capitalism, a history already filled with such plunder. And it is completely unnecessary. The current bill is 110 pages, but the additional 107 pages are mostly window dressing designed to soothe the consciences of “conservative” and “liberal” alike without actually doing anything different than the original three pages.

I am not one of those who say that we cannot negotiate with terrorists. I do say that we should not surrender to terrorism. I do say that we negotiate from our strengths, and play our high cards. And in this game, we have all the trumps—700B of them—and we should not throw these cards away, or give them to the economic terrorists.



So far, the clamor from the average American to stop the so-called Bailout has rung in Congress' ears. Opposition is growing, but the powers-that-be are rushing to get this traitorous deal done soon. Democratic and Republican negotiators refuses to let it die, as they hammer out a deal to STILL pour $700 billion into the financial mess their regulations made long ago.

Economist and writer Joan Veon, in her current column at, warns that the new regulations Congress is proposing will not cure America's financial woes. It will start new ones and worse ones. The link to her current column is HERE – please read it.

Both President Bush and the Democrats claim that without this so-called Bailout, America will fall into recession or even a Second Great Depression. The truth is that this so-called Bailout will lead America into either or both fates.

The Review joins it's voice with Ms. Veon's and the millions nationwide to fight this legislative monster. With Ms. Veon, we urge you to call your Congressman and Senator NOW and demand that they vote “NO!” to this so-called Bailout.

Do not delay! Phone or e-mail them – phoning is preferred – and tell them to “VOTE NO ON THE BAILOUT!”


Usury: Wealth Without Work and Why it Matters

The following is a talk I will give later this week to the American Monetary Institute conference in Chicago.

The great problem a theologian has in discussing usury is that economists regard it as a moral term and therefore exclude it from scientific discourse. In this view, ethics and economics occupy separate ontological realms, and between the two worlds, there can be no real connection or communication. To them, it is positive science that remains the “master discourse,” the true and only description of reality, while ethics occupies the shadowy world of “what ought to be” rather than the real world of “what is.” Ethics and economics, according to economists, can never meet and can never enlighten each other. The question, as the economists see it, is one of science: they are happy to wear the mantle of “positive” science, and leave the “normative” talk to priests, shamans, or whoever else wants the task, just so long as the priests and shamans will leave them alone.

The problem with this view is that it is not scientific. To be precise, the very distinction between a “normative” and “positive” science betrays a misunderstanding of the scientific enterprise in general, and the work of economists in particular. For clearly, economics is a humane science, dependent on the other humane sciences for the very definition of its starting terms; to cast off the humane sciences is to abandon any possibility of being scientific.

In this paper, I will attempt three tasks. The first is to explicate the relationship between normative and positive science and to annihilate the difference between them. The second task is to show the relationship between ethics and economics, or more precisely, between equity and equilibrium. The third task is to show how usury destroys equity, and therefore makes equilibrium impossible. But more importantly, I will attempt to demonstrate that there can be no real quarrel between the moral order and the economic one; to posit such a quarrel merely means that one has either misunderstood ethics, or misunderstood economics.

Science, Normative and Positive

Some wag somewhere has remarked that economists suffer from “physics envy.” One could certainly make that charge against W. S. Jevons (1835-1882), one of the founders of marginal economics, when he wrote that a “perfect system of statistics … is the only … obstacle in the way of making economics an exact science”; once the statistics have been gathered, the generalization of laws from them “will render economics a science as exact as many of the physical sciences.”1 More than a century has passed since Jevons wrote these words, and in that time there has been a growth of vast bureaucracies, both public and private, devoted to establishing this “perfect system” of statistics. Today, we have access not only to vast amounts of statistics, but to computing power unimaginable in Jevons’ day; still, the models, worked out in great precision and computed on engines of vast power, seem to lack any predictive reliability whatsoever.2 Despite these failures, economic orthodoxy clings to the notion of itself as a positive science.

In light of these failures, we can ask if economics really is a positive science. But let me suggest that the question is meaningless. Every science, insofar as it really is a science, is both positive and normative. Every science, insofar as it is a science, must be “normalized” to some criteria of truth. These criteria will arise from two sources, internal and external. The internal criteria involve a science’s proper subject matter and methodology. But such internal criteria alone are insufficient to found any science as a science. In addition, there must be external criteria of truth, and these truths can only come from one or more higher sciences. In the absence of such an external check, the science will merely be circular, dependent on nothing but itself and unconnected with the hierarchy of truth. Thus, for example, biology is responsible to chemistry, chemistry to physics, physics to mathematics and metaphysics. No biologist can violate the laws of chemistry, and no chemist can reach a conclusion contrary to physics. Thus every science is responsible to its own methodology (and therefore “positive”) and to the higher sciences (and therefore “normative”). A scientist’s obligation to be faithful to his proper method does not relieve him of his obligation to higher truths.

It is necessary, then, to determine what the higher sciences are for economics. Now, the physical sciences terminate in physics, but the humane sciences terminate in some view of anthropology derived ultimately from philosophy and theology, with stops along the way for psychology and sociology. It would seem to be self evident that a complete view of man would involve these sciences, yet this view is not generally accepted by economists. How is it possible that a humane science can cut itself off from these indispensable sources of knowledge about humans? The answer lies in the fact that neoclassical and Austrian economists accept as a purely economic truth that which is, in fact, a purely philosophic stance, namely that of Jeremy Bentham’s utilitarianism. Mises's Human Action, for example, merely renames Bentham's hedonistic thesis Praxeology, and claims that is has the same epistemological status as do logic and mathematics, “unconditionally valid for all beings endowed with the logical structure of the human mind.”3 Nevertheless, some of us, clinging to our illogically structured minds, have sought another basis for the understanding of human relationships.

Justice and Economics

If what has been said so far is true, then economics will be critically dependent on certain terms that are beyond the competence of economists to define. Terms like “freedom” (as in “free” markets) or “liberty” or “society” or even “man” are critical to economics, but their precise definition depends on other sciences. But above all the critical terms in economics, the most important is justice. This is because economics is the science that deals with social provisioning, with those human relationships necessary to the material sustenance and continuation of the social order. And the virtue that governs all human relationships is justice, or at least it is according to Aristotle and all the Scholastic thinkers who followed in his wake.

For Aristotle, justice is not just a part of virtue, but “virtue entire, nor is the contrary injustice a part of vice, but vice entire”.4 Justice underlies all the virtues and governs all relations of man to man, man to society, and man to himself. It is within this relationship of man to man, that is, within justice, that Aristotle locates economics. He presents a sophisticated analysis that includes a demand function, a distinction between use and exchange values, the function of money as the medium between value and demand, and usury, among other things.

Aristotle discusses justice of two kinds: distributive and corrective. Distributive justice deals with how society distributes its “common goods.” This refers to the common goods of a state, a firm, a partnership, or any cooperative enterprise. For Aristotle, these distributions are proportional to one's contributions. However, different contributions can be valued in different ways. For example, how does one measure the relative contribution to production of, say, the janitor and the engineer? For Aristotle, this is a cultural question, “for democrats identify it with the status of freeman, supporters of oligarchy with wealth (or with noble birth), and supporters of aristocracy with excellence.”5

Corrective justice,6 on the other hand, deals with “justice in exchange”; that is with transactions between individuals. In this case, justice consists in exchanging equal values, in “having an equal amount before and after the transaction.”7 The problem is how to determine what values are equal when dealing with dissimilar products, which is nearly always the case. To use Aristotle’s example, how many pairs of shoes are equal to one house? The only way to know this is by “need,” which many economists understand as the demand function, mediated by money. Thus the demand for houses and shoes can be compared by looking at their prices and the two can be equated in terms of money. Money, however, is a social convention: “this is why it has the name money (nomisma)—because it exists not by nature but by law (nomos).”8 Thus the requirement for equality in exchange comes from the natural law, but the method of implementing it is legal or conventional.

It is important to note that distributive justice is a theory of production, and corrective justice a theory of exchange, and hence these are two separate parts of a complete theory. Under distributive justice, what one gets is proportional to what one gives; one's wealth is related to one's work. The Philosopher gives us the following model of an economy: the cobbler receives a number of shoes proportional to his contribution to the production process, while the carpenter receives a certain number of tables and chairs. This is distributive justice. Since neither needs that many shoes or chairs, they then exchange between themselves to correct the imbalance. This is corrective justice. Of course, cobblers and carpenters are paid not with actual shoes and chairs, but with money. Nevertheless, the corrective and distributive principles remain the same.

Up until the 15th century, the unity of distributive and corrective justice was recognized both implicitly and explicitly; economics was essentially a virtuous enterprise. However, in the 16th century, as new forms of ownership and production began to take hold, a more individualistic approach to economics gradually developed. The ethical framework of medieval economics came under attack, but there was little to replace it. Or rather, what sought to replace it was a new concept which preached quite openly that “greed is good.” This idea was most famously expressed in Bernard Mandeville’s The Fable of the Bees: or Private Vices, Publick Benefits (1724) “in which he put forth the seemingly strange paradox that the vices most despised in the older moral code…would result in the greatest public good.”9 The locus of economics shifted from the virtuous to the vicious, and it is Mandeville, and not Smith, who is the true founder of modern economics.

In The Wealth of Nations, Adam Smith attempts to include both kinds of justice, but they are disconnected from each other. Smith's “labor theory of value” is about production, and it is inherently a theory of distributive justice, since production is always a social process. The so-called “invisible hand” theory, however, is about exchanges between individuals, and hence falls under corrective justice. Smith could never join the two halves of the theory into a coherent whole. So it is no surprise that after Smith, economic theory bifurcates into two contending traditions, the labor theorists and the utilitarians, each one owing allegiance to a different form of justice. Neither side could offer a complete description of the economic situation, try as they might.

This impasse was broken by the “marginalist revolution,” by which returns to labor and capital were (in theory) priced at their “marginal” contributions to production, and commodity prices driven to the cost of production. The magic by which productivity and price were to be equated was free bargaining. Both worker and capitalist were free to accept or reject any contract offered. By this means, and over time, returns to both capital and labor would be normalized to each other, that is, there would be neither great wealth nor great poverty, prices would be driven to costs, and economic rents eliminated. Therefore, the economy could achieve equilibrium by a pure system of exchanges without recourse to distributive justice; contractual (corrective) justice alone could solve all economic problems. The messy cultural problems of distributive justice could be eliminated entirely, and economics placed on a mathematical basis, thus becoming a “true” science.

The problem with this theory, however, had already been pointed out by Adam Smith a century before the theory was advanced; namely that contracts do not arbitrate productivity, they arbitrate power. Most workers cannot withhold their labor for as much as a month, and few could hold out for a year. On the other hand, the “masters” (as Smith called them) could easily survive for years on their wealth without employing a single hand. Therefore, the capitalist will always have an inherent advantage over the worker, and the wage contract will reflect this advantage, unless something is done to address the imbalance of power between them.10 That is to say, unless there is some prior institution of distributive justice, corrective justice will be insufficient to relate wages to productivity.

Equity and Equilibrium

There is one simple principle that must apply in any economic theory: in order for there to be economic equilibrium, what one takes out of the economy must be equivalent to what one puts in. That is to say, work and wealth must be equated. Under such conditions, equilibrium is a trivial problem; absent such conditions, equilibrium is impossible. Now, equity need not be perfect because equilibrium need not be perfect. Nevertheless, if there is not a general balance of supply and demand, if there is not a general expectation that markets can be cleared at a price sufficient to cover the costs of production, the economy will grind to a halt. Investors will not invest and wages will be too low to clear the markets. Try as we might, we simply cannot get away from the Aristotelian requirement of distributive justice.

The most obvious economic truth in the world is that if there is wealth without work, then there most also be work without wealth. If someone gets more than he gives, someone else must give more than he gets. It is quite true that no value theory can fix with mathematical precision the relative values of giving and getting. Yet, reasonable judgments may be made, and each theory provides a criterion for judgment, namely that profit and wages are normalized to each other. This means that if there is a high degree of social inequality, then someone must be getting more than he gives, and the economy is out of balance.

Non-Economic Equilibrium

But no society can long tolerate such disequilibrium conditions. Lacking a principle of distributive justice, we must use non-economic means to balance the economy. The major non-economic means of restoring equilibrium are charity, welfare and government spending, and consumer credit, that is, usury. Each of these methods transfers purchasing power from one group, which presumably has an excess, to another which has a deficit. The first method, charity, will always be necessary to some degree because no economic system can be perfect.

The second non-economic means is welfare and government spending in general. By these means, governments seek to re-establish equilibrium conditions either by redistributing incomes or by increasing spending. And for a good while, this method worked fairly well. However, in this system, distributive justice takes the form of the less efficient redistributive bureaucracy.

But for some time now, government redistributions have been insufficient and the economy has depended chiefly on the third method, usury or consumer credit. This is the plastic economy, an economy based on credit cards. And to the extent than an economy depends on consumer credit, it is, quite literally, a house of cards, and will be as unstable as those structures usually are. Of course, usury merely delays the problem, postpones the crisis to a future period; clearly, a borrowed dollar used to increase demand today must decrease demand by that same dollar tomorrow—plus interest. This necessitates more borrowing, and eventually, the system falls of its own weight, as credit is extended to an increasingly weakened consumer, and a credit crisis results. The “stability” conferred on an economy by usury is illusory and temporary.

Non-economic equilibrium provides us with a measure of just how well an economy is doing in economic terms. If the economy has a high dependence on non-economic means, we may assume that there are serious problems in the economy itself.

Usury: Wealth Without Work

We are now in a position to make a judgment about usury. The criterion for this judgment will be whether usury adds anything to the economy, or whether it is an example of wealth without work. If the former, then it is a proper part of economic order; if the latter, it destroys economic order. Note here that the moral judgment and the economic judgment are identical, however one judges the case. There are not two separate ontological realms, but only one truth to which all sciences must relate. Before we can make our judgment on usury, a few comments on money are in order.

Money is a marvelous thing. Money directs the operation of an economy. There can be land to work, hands to work on it, and tools with which to work it, but without money, these will never get together, or will do so only in a very primitive manner. But although money is a marvelous thing, there is some dispute about just what kind of thing money is. For some it is a commodity, for others a store of value, and still others, a mere medium of exchange. But without going into these arguments, one thing we can say about money is that it is an accounting system.

If, in doing a day's work, I add, say, $100 to the stock of goods and services available to to the public, it is important that I get a credit for $100, credit which gives me the right to take an equal amount out of the said stock of goods and services. This credit can be in the form of gold coins, little slips of paper, or electronic bits roaming around cyberspace. In the latter case, no currency of any kind is required, and there need never be any reason for me to convert my electronic credits into actual slips of paper or metallic coins. The computer money is independent of any particular physical representation. I do a day's work and my account gets credited for that work; I go shopping and my account gets debited. The currency I carry, if I happen to carry any, is simply the credits in visible form, and in exchanging the visible credits for tangible goods, I surrender them and thereby debit my own account and credit the account of whomever I give the money to.

Once we grasp money as an accounting system, we understand immediately why any medium will do, why tally sticks work as well (if not better) than gold coins: the tally stick can be created whenever a new product is created, and marked whenever it is sold, over whatever period of time it takes to pay for the product. One need not wait on the mint or the bank to supply one with the visible form of the credits. Either the tally stick or the electronic bits can be supplied at virtually no cost. Money can be called into being simply by the production of salable products. Further, this accounting system exactly matches a proper economy: work adds both tangible wealth (real products and services) and the accounting wealth (money) necessary to circulate them.

The question is, does usury add a salable product to the economy? Is usury necessary for the circulation of real wealth? Clearly, in order to produce something, we must consume other things: labor, raw materials, tools. These things must be paid for, and paid in proportion to what they contribute to production. If, in order to produce something, I borrow any of these things, I must pay the owner a proportion of what is produced. If I borrow the money to pay for them, what I really borrow is the things themselves, the things that money stands for. To put it in concrete terms, if I lend a farmer a supply of seed corn to plant a crop, I have a claim on some portion of that crop. Likewise, if I lend him the money to buy the seed corn, I have exactly the same claim; the money merely “stands for” the actual seed corn, and the claim is identical. In such a case, there is no case of usury.

But suppose there is no crop. Suppose that wind and weather combine to cause a crop failure. What claim do I have? None that I can see. Like the farmer, I took a risk and like the farmer I take a loss; the failure of the crop dissolves all claims. To demand a payment would be to take a share of what did not happen. I may demand he return the property he borrowed, if that is possible, but I cannot demand he share of a profit that doesn't exist.

Further, my claim stands on one more assumption: namely, that I actually had the money I lent the farmer. However, if I did not have the funds, if, for some odd reason the powers that be had given me the power to lend what I did not have, any payments, whether for principle or interest, would truly be something for nothing, would be wealth without work. Of course, this is exactly what happens with fractional reserve banking: the bank lends money it creates out of thin air; money that represents no tangible asset and requires the bank to surrender no actual goods.

Investors may claim a share of the output, where there is output and where they actually have the money they invest. No society can advance economically without such investment, and since capital represents “stored-up labor,” to deny such returns to capital would be to deny returns to the labor it represents. But to demand a return where there is none, or to demand more than is made, or to demand when nothing, in reality, was lent, is to guarantee that the economy will always be both inequitable and unstable. Such economies must constantly rely on government interventions to rebalance their accounts, and must suffer recurring bouts of contraction that no government can cure.

Science and Religion

Most religious traditions roundly reject the notion of usury. But the sages of the Enlightenment, such as Bentham, rejected this teaching, mostly because it was a religious teaching. By doing so, they wrote into their systems the very sources of economic rent—the formal term for “wealth without work”—that make equilibrium economically impossible. Hence, and despite the best of intentions, they must suffer a continual expansion of government power oven an increasingly unstable economy, an expansion that must continue until collapse. And in place of a real science, we have only a series of contending ideologies masquerading as scientific truths; by declaring its independence from the hierarchy of truth, economics has declared itself independent of science itself and a slave to mere ideology. Only by subjecting itself to the sources of truth can economics claim the name of “science,” and only then can it give adequate guidance to those who would seek a more proper role for government, on the one hand, and a better distribution of wealth on the other.

In social justice circles, there is an old saying: “If you wish for peace, you must work for justice.” The economic equivalent is, “If you wish for equilibrium, you must work for equity,” for equilibrium is economic peace and equity is economic justice, and you will never see the one without the other.

1 Quoted in James E. Alvey, "A Short History of Economics as a Moral Science," Journal of Markets and Morality 2, no. 1 (Spring, 1999): 62.

2 Paul Ormerod, The Death of Economics (New York: John Wiley & Sons, Inc., 1994), 120-7.

3 Ludwig von Mises, Human Action: A Treatise on Economics, 4th Revised ed. (San Francisco: Fox & Wilkes, 1963), 57.

4 Aristotle, Nicomachean Ethics, ed. Richard McKeon, trans. W. D. Ross, Introduction to Aristotle (New York: Modern Library, 1947), 1139a, 10.

5 Ibid., 1131a, 25-29.

6 During the Middle Ages, the term “corrective” justice became “commutative” justice due to a mistranslation. The word Aristotle uses is  (diórthotikós), “corrective” (LSJ). Although the term “commutative” has become more common, we will use the term “corrective” as closer to the original sense in Aristotle.

7 Aristotle, Ethics, 1132b, 19-21.

8 Ibid., 1131a, 25-31.

9 Hunt, History of Economic Thought, 33.

10Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (Amherst, New York: Prometheus Books, 1991), 70


Devils In The Details

The currently proposed legislation under discussion in the US Congress - the one proposing to bail out Wall Street – has more constitutional horrors in it that anyone thought.

Mike Whitney, writing for the anti-Establishment Left publication Counterpunch, reports on a provision within the legislation that would give the Secretary of the Treasury unlimited power regarding economic policies. He quotes directly from Section 8 of the proposed law, and it is frightening, to say the least.

We urge you to contact your Congressmen and Senators today, and demand they not back this proposed Wall Street bailout. Don't let the Congress abdicate any more power for the sake of either greed or cowardice. Thank you.


Eat My Shorts!

The real problem isn't theft. None of us are as honest, as truthful, as good, as kind as we know we should be. No, the real problem comes when we fail to recognize theft as theft, lies as lies, meanness as such. The man who steals and knows he steals may reform himself and become an honest man; this man at least knows the truth about himself. But the man who rationalizes his theft as free-market “liberty” can never know himself, and hence can never reform.

These observations come to mind when considering the dispute over a particular market operation called “short-selling.” Many commentators, who don't seem particularly bothered by the trillion dollars taken from the taxpayers to bail out some of our sleaziest operators, currently have their knickers in a knot because the government has temporarily outlawed short-selling. This seems like an obscure issue, and it is likely that most people who do not “play” the market do not know what this means. Some explanations are in order.

There are two kinds of “short selling”: “naked” shorts, and covered shorts. In either case, one sells a shares of stock in a company not to the highest bidder, but to the lowest, in an effort to create a panic in that stock and drive the price down. Now, why would somebody sell their stock at a deliberately lower price? This makes no sense. Here's the secret: when they sell it, they don't actually own any of the stock. After driving the price down, the short-seller hopes to buy it back at the lower price and deliver it to the people who bought it from him at a higher price.

How can you sell what you do not own? To do so is a fraud, and has actually been outlawed, even though the laxity of regulation means that it happens all the time. This is “naked” shorting. But the other kind of shorting, covered shorts, means that the short-seller borrows the stock he sells and returns it to the owner at a later date. But who would lend anybody their stock for the purpose of driving down its value? The answer is, “nobody.” The sellers do not borrow it from the owners (who would never lend their assets for such a purpose) they borrow them from the brokers who are supposed to be looking after their clients' interests, but don't. The brokers collect a few from the shorters to destroy the value of their clients' stock, which they are supposed to be holding in trust.

When most of us buy stocks, we don't actually take them home with us. We leave them in the care of the broker so that we can more quickly sell them, if needs be. But we do trust that the broker is not going to misuse our property and rent it out to others to destroy its value. This is a violation of fiduciary trust, and should be actionable under the law, or at least under any sensible notion of law.
But the law, alas, is not sensible. It is quite legal for the broker to give away your property without your permission. If you borrow a cup of sugar from your neighbor, and return half a cup, you have stolen from your neighbor. But at least in this case, everybody knows what happens. If you break into your neighbor's house, steal a cup of sugar, and then leave half-a-cup on the front porch three days later, the whole thing is odd, impersonal and mysterious. But it is still stealing. And if you bribe the policeman on the beat to tell you when the owner is away from his home so that you may safely break-into his home, we would cite this as an instance of corruption. But when it is legal for you to break in and “borrow” the sugar, and legal for the cop to take a bribe, then we say the system is rotten to the core.

If you “borrow” a stock worth, say, $100, and return one worth $75, you have stolen from the owner and ought to make restitution. If you do it without his permission, you ought to go to jail. And the broker who rents out what he does not own, and rents it out for the purpose of destroying its value, ought to lose his license. It is not really necessary to ban short selling. It is only necessary to ban theft and fraud. If you can convince an owner to lend you his stock and destroy its value, then have at it. Otherwise, do not take what belongs to another, even for three days.

It is not that people are not permitted to bet that the market will go down. That can be done honestly with options. But shorting is more than making a bet, it is working to cause the disaster from which you plan to profit. When someone short-sells, there are actually two owners to each share of stock. One the real owner, and the second the owner who bought the share. Since the rules allow three days to actually deliver the shares after sale, for those three days there are twice the number of shares in the market than actually exist. And increased supply means lower price. It is one thing to bet that some particular horse will lose the race; it is quite another to go down on the track and break his leg to ensure that outcome.

Short-selling is kind of a metaphor for all that is wrong. People do all sorts of shady things to make money. This is hardly news. But when the thief feels that his rights have been violated because he is no longer free to ply his trade, when the short-seller feels that the freedom of the market is violated when he is no longer free to “borrow” other people's property, then you know that some kind of craziness is going on, that we no longer understand such terms as “freedom” and “property,” “duty” and “honesty.” When we lose the meaning of these terms, what happens in the market is hardly surprising. Indeed, it is inevitable.

I pick short-selling as a mere symbol of a greater malaise. I pick it because the people who caused this problem think that theft is perfectly normal, merely the free expression of the market. But what is really being shorted today is not any particular stock, but the entire United States of America. And with any short-sell attack, there will be a few winners and a lot of losers. In the current situation, those who profited from destroying the markets will also profit from the rescue of the markets.

And guess who the losers are, guess who will eat all of those shorts?


The Ownership Society, V. 2

The local TV news did a story on progress about the new Cowboy's stadium in Arlington, which is to be ready in time for next season. The Cowboys will vacate their current government-subsidized quarters and move into swankier digs, also at taxpayer's expense. The stadium is, of course, a place where moderately rich men go to make their living, and where a very wealthy man gets wealthier. Being wealthy requires a subsidy from the citizens of Arlington, Texas, and the greater the wealth, the higher the subsidy. This is not the first time the said citizens have done this. George Bush's one accomplishment as a businessman—aside from looting some energy companies which then went bankrupt—was to persuade the City of Arlington that the Rangers were apt welfare cases. And anybody who has seen them play might agree that he was right. But the subsidy greatly increased the value of George's small share of the Rangers into a sizable fortune, proving once again that anybody can make it in America, provided he was born into the right family and has the right connections.

Jerry Jones's subsidy, if memory serves me correctly, comes to something like half-a-billion. And since the stadium is publicly supported, it was necessary to raise the prices substantially to keep most of the public out. You know, the wrong class of people might track in mud on the new carpet. Now, I think the City of Arlington is very foolish in all these subsidies. Located between Dallas and Fort Worth, the would get development no matter what, and some of that development might produce more revenue, at less cost, then the revenue produced by the eight days a year the Cowboys will actually play a regular-season game in their new shelter.

But whether it was a good idea of not, it was at least an idea that the citizens of Arlington got to vote on. They pay a higher sales tax to support Jerry Jones because a majority of them, or at least a majority of those who showed up to vote, agreed to do so. It might be democracy gone a muck, but at least it is democracy.

Yesterday, $85 billion was given to AIG. In the past year, between bailouts and “injecting liquidity” into the banks, the Fed has spent nearly a trillion of the public's money. But unlike the citizens of Arlington, the public did not get to vote on this. The public treasury is raided, the public accounts driven further into the red. But no act of congress authorized this. The theft of public funds was performed mostly by the Federal Reserve Bank. Who are these gentlemen at the Federal Reserve Bank, and where do they get such power? And where do they get such money? A bridge to nowhere is beginning to look like a bargain, and if money is needed for schools or roads, the Congress bewails the growth of government. But money for wars and money for the rich always seems to be available, and debating the subject is regarded as unpatriotic.

If there was any doubt that America is a socialist country, the events of the last few days should have dispelled those doubts. But it is a peculiar form of socialism, a socialism that is available only to the rich. True, a few bones are tossed in the direction of the general populace, “free-ways” and social security, systems that are crumbling and in danger of bankruptcy. But the main beneficiaries are the wealthy. Like Jerry Jones, they can't seem to make it without some help from the Federal Reserve Welfare Office. The people, by and large, are still capitalists. Not that many of them have much in the way of capital, but they still believe, and believe it so deeply that a candidate who does not present himself as a convinced capitalist is considered to be a convinced communist, unfit for office. This, apparently, is what John McCain means when he says the “fundamentals” are sound: it means that the people believe in an economic fundamentalism that their leaders have long ago abandoned. The public knows of no other choices, because the parties give them no real choice. And what choices are presented to them, by furtive “third party” candidates, are usually “all or nothing” type choices, such as radical libertarians who want to abolish government entirely. Of course, such “all or nothing” choices always work to the advantage of the “all”; nobody chooses nothing; there just aren't that many nihilists. So a discussion of what a proper government should properly do is ruled out before the discussion starts.

But back to the fed. Surely, this is an anomaly in a democratic society. They wield great power, and great money—our money—but nobody elected them and nobody knows quite what they do. We are not even sure if they are part of the government. Some say they are, some say they are a private bank. Who is right? Both sides. The Fed is a key part of that peculiar American brand of socialism. Technically, they are no part of the government. The employees of the bank are not employees of the government and their names do not appear on the Federal Register. The Fed is owned by the member banks, that is the 12 regional Federal Reserve Banks that each federally-chartered bank is required to join. The largest is the Federal Reserve Bank of New York, which owns 53% of the Federal Reserve System, and which in turn is largely owned by Citibank and JP Morgan/Chase. This makes the whole banking system overly sensitive to the needs of two New York super-banks.

But on the other hand, seven of the 13 members of the governing board are chosen by the President of the United States for fixed terms of office; the other members are the chairman of the regional Fed banks; the chairman of the New York bank is a permanent member, and the other slots are filled on a rotating basis by the other Fed Bank chairmen. The Fed has broad powers to regulate the banks, and any profits, over any above the interest payments they make to member banks, go to the Treasury. They are charged with controlling the money supply by varying capital requirements, setting the discount rate, and various other monetary tricks. They have enormous powers in our country, but they are under the direct control of no democratic institution. Oh, the Congress can threaten to change their powers, but in truth, the honorable members of that body are just like you and me: they have little understanding of money matters and are easily intimidated by the “experts” at the Fed. Alan Greenspan learned that he could talk in gobbledygook and the Congress would take his words as if they were spoken by the Delphic Oracle or a financial wizard.

So what is the Fed? It is that peculiar genius of American Capitalism/Socialism: the combination of private privilege and the public purse. Here it is quite literally the public purse, since the Fed controls the purse strings. Profits are privatized; losses as socialized. The “Ownership Society” that Bush talked about at the beginning of his first term has come to pass. Only it means we own the failures after they have drained the assets.

Henry Ford once said that if the people understood how money was created, there would be a revolution before morning. He was wrong. If you tell people how money is created, they will stare at you blankly in disbelief, and dismiss you as a crank. Surely, the banks cannot just create money. But they do. When you sign that mortgage for your home, that note for your car, the mastercard receipt for a night on the town, the money to pay it off does not exist until you sign the mortgage, the note, the receipt. The banks call money into being by loaning it out. People find that impossible to believe. And they should, since it is unbelievable. But it is true. The Fed is supposed to inject some prudence and rationality into the process, but we see what kind of rationality has ruled for the past eight years. The mild expansion in the economy was strictly a monetary phenomenon; it had nothing to do with the expansion of manufacturing, mining, or farming. It was simply a matter of pumping out money for houses and such, and thereby giving the appearance of prosperity, but postponing the day of reckoning.

That day is upon us, and now the sad reality beneath the appearances is revealed. Todo has pulled back the curtain and the wizard is revealed as a sad little man. But you and I now own Freddie and Fannie and AIG. How does it feel to be a big time capitalist? Don't get too used to it, however. Once they start making a profit, there will be a push to privatize them again. The good people of Arlington got to vote on owning stadiums, you had no voice in owning AIG, and will likely have no voice when they sell it.


Reinventing America

I am not known as an optimist. I am more than willing to point out that the glass is half-empty. So my friends were not surprised when, during the general euphoria over the collapse of the former Soviet Union in the early 90's, I said, “We are looking into our own future, 10 or 15 years from now.” Of course, the statement seemed absurd. The West had “won” the Cold War, and America was the world's only super-power. International hegemony was in sight, and there were no credible opponents. The economy was booming, and the internet revolution was just getting started. And indeed, 10 years have past, and now 15, but we have not collapsed.

Nevertheless, there is a sense of foreboding. Hegemony seems far off (thank goodness) and the world is full of opponents. We can rattle our sabers over Georgia, but can't really do much about it, even if Sarah Palin becomes the new Dick Cheney. We seem to be bogged down in wars we cannot win, debts we cannot pay, an economy that is a long way from producing what we need, a government mired in chronic incompetence and corruption, a politics with not only no solutions, but no real awareness. We are facing major failures in health care, infrastructure, finance, housing, manufacturing, education, and any other area you care to name. Indeed, searching for the bright spot seems to be a task not worth the effort.

Comes now Dmitry Orlov with Reinventing Collapse, a comparison of the US/SU (United States/Soviet Union) at the moment of collapse. Orlov grew up in the SU but has been in the US since the 70's. He is an engineer and a leading theorist of the “Peak Oil” movement. He traveled in his native land extensively in its period of collapse, and now he believes that he sees the same forces at work in the United States.

Now, by “collapse,” Orlov means something very specific. Not the “end of civilization as we know it” (although it will—and did—feel like that), but simply the failure of the economy to be able to produce enough to maintain the existing capital base, and the breakdown of political authority. The first seems already to have happened; by any measure, the economy is bankrupt, and we must, like Blanche DuBois, rely on the kindness of strangers to keep us afloat. Wages by themselves have long since failed to clear the markets, and we are curiously dependent on credit to get us through to the end of the month. We must depend on people who make even less than we do to make our goods. Indeed, the most frightening line about the economy is the one one hears repeated everyday with casual nonchalance: “The consumer is two-thirds of the economy.” Excuse me? Doesn't that mean that production is only one-third? And doesn't that mean, in turn, that we produce only half of what we consume? Surely, this is a recipe for collapse. If we produce less than we consume, we must borrow the difference, and borrow it from governments and nations that may not have our best interests at heart. Why should they?

But it is not only the consumer, but the government (at all levels) and the banks that depend on usury. Surely, this is a ponzi-scheme that must collapse, indeed, is collapsing right before our very eyes. Government is now concerned with two issues: the bailout du jour and the war of the week. But who will bail out the Fed when it fails (meaning, when foreigners no longer want to support it), and how will we fight our wars when we can no longer support our workers at home, much less our armies abroad?

Orlov finds many similarities between the US and the SU. He finds these similarities in similar levels of (and mythic belief in) technological progress, militarism, failures in food production and information technology, an over-developed jail system consuming a significant portion of the population, not to mention economic resources, an over-reliance on imports for things that could be made domestically, a strong ideological commitment to world domination, and so forth.

However, more interesting than the similarities is the differences. In comparing the SU/US, Orlov finds that the Soviet Union was much better prepared for collapse than we are. Part of this is due to the fact that they were at a much lower level, so “collapse” was more like falling out of a one-story window, rather than from the top of the building. Further, the command economy had some curious advantages in preparing for collapse. For one thing, money wasn't all that useful in the SU; there wasn't much to buy, and housing, health care, transportation were all free. The housing may have been mean, and the health care basic, but people didn't lose their homes, such as they were. There was a chronic shortage of housing, so three generations lived together in close quarters, so at least they could provide some support. And the transportation system functioned throughout the long crises. Mussolini may have been praised for “making the trains run on-time,” but in Russia they always ran on-time.

Russian consumer goods were somewhat of a joke. The command economy concentrated on capital goods, with consumer goods seen as a distraction. The refrigerators were famous for heating the house, and the food. You waited for years to get one, but it was up to you to make it work. However, once you got it working, it lasted for years, and became an heirloom. Russians never threw anything out, because everything was made to last forever. American consumer goods are beautiful and marvelous, but fragile, and that deliberately so. Planned obsolescence keeps the economy going, and things are made to be thrown away; to have yesterday's gadgets or clothes is to make yourself obsolete in the eyes of your friends.

The American economy is built on our fetish for the car, and our cities are designed around the automobile. We think nothing of living an hour or two from work, in remote suburbs that are difficult and expensive to service. Further, the housing itself is “stick-built,” cheaply made and easy to knock down, which is what is likely to happen as the suburbs are abandoned and people migrate to the cities, where transportation and services, such as they are, will still be available.

Examining the way the Russians coped and adapted gives some insight to what America can do. This is what makes the book important for distributists, because the answer to collapse is distributism. The development of local manufacturing, local food supplies, local currencies, local defense and policing, etc. will be the best adaptations to the new realities. The America that is cannot be much longer. The America that could be, could be in the end much stronger. But the transition will be brutal, as it was in the SU. And if Orlov is right, it will be much worse here than there. Much more traumatic, with a greater degree of chaos and anger. A nation that define itself in consumerism will have a tremendous crises when it can no longer consume in the same way, when there are no jobs, when there is no future, or at least no future that looks anything remotely like the past.

Everyone should learn to do a few things. One, they should learn to be useful. Skills conferred by the MBA or as marketing managers may not be useful. Learn to make something that would actually be useful to your neighbors in time of need. Two, we should all learn to grow things, and grow them without chemicals and pesticides that may not be available. And never, ever, throw any garbage away: compost, compost, compost. Recycle. Reuse. Grow a garden now to learn what works were you live and what doesn't. In Russia, failure of the food supplies (other than high-quality bread) was a fairly common occurrence, so Russians learned to fend for themselves even in the best of times. In the collapse, garden plots of 1100 square feet sustained many a family. If a collapse comes, you will be surprised how much it is possible to grow in a home garden, once you get rid of all that useless grass.

Don't worry about money. Worry about wealth. Wealth is things, not money. In a collapse, food that can be stored will be worth more than greenbacks. Learn to get by without money. Learn to work, learn to walk, learn to ride a bike. And (it may well be) learn to shoot. Get to know your neighbors; you may need them shortly.

There are two points about the book that deserve further comment. One, Orlov is a “Peak Oil” fan, and sees the failure of energy supplies as a cause of collapse. Now, I am not smart enough to judge the peak oil argument. However, I think it would be unfortunate if it were not true. It would be unfortunate if, as some think, there is a new Saudi-sized oil field under the now-melting polar ice-cap. The very fact that you can find it under the melting ice tells you what the problem is. Indeed, if peak oil is not true today, it must become true at some point in the future, unless one believes that the earth is creating oil faster than we use it, which seems unlikely. So the real argument is not if, but when.

The other point is that Olov has fallen into the Malthusian trap. Our problems are not caused by overpopulation, nor the shortage of any necessary commodity. Indeed, peak oil is not about population, it is about greed. It is not the many that are consuming too much, it is the few. And if the many learn to consume as we consume, soon nobody will consume much of anything. But that is not a population problem. Indeed, neither peak oil nor population pressure had much to do with the Soviet collapse. Indeed, the population problem is largely an illusion. Birth rates throughout the world are already below replacement rates. The population appears to be growing only because the death rates are declining; people are living longer, but having fewer children. The real problem will be declining populations.

I would very much like to be wrong about all of this. Nothing would please me more than if, five years hence, someone would say to me, “John, remember that post you wrote about the impending collapse? But now the economy and the nation is stronger than ever, our wars are over, and we've learned to make all the things we need, or at least buy them with things we do make. You sure look like a fool now, don't you?” I would very happily accept being the fool in such circumstances. But I think the risks of that are fairly low.

In the meantime, I think the best advice to Distributists is to prepare for the worst and pray for the best. But I am not always the pessimist. Civilization did not collapse in the SU, and need not collapse here. Indeed, there was a revival of religion, particularly the Russian Orthodox Church, and the Catholic Church in the Ukraine, Churches which had been suppressed or subverted since the Russian Revolution. Our churches have not been suppressed, but they have been subverted and marginalized. And as our civilization falls apart, it may be that its own errors show us the way to its real redemption, both in the temporal and the spiritual order.

Maybe the glass is half-full after all.


Distributist Radio

The Paleocrat, Jeremiah Bannister, not only has an excellent blog, he has a talk radio talk show that originates out of Olivet College in Michigan. Jeremiah discuses issues of interest to Distributists including pro-life issues, the economy, Distributism, the elections, elections, etc. Its a lively show; think of Rush Limbaugh with a brain. It's on every Monday and Friday, 5-7 pm, EST.

The Station is 89.7 FM, WOCR, Olivet, Michigan, and you can hear it online at (This may only work with Internet Explorer). You can also view him on Youtube under "Paleo Radio."

This Friday, the Paleocrat will interview yours truly, on the subject of the pro-life movement and my book. You'll be able to call in with your questions, or send them on-line. Hope to hear from you all!


"Pro-Life" or Just "Anti-Abortion"?

Political debate is often a matter of controlling the terms, since the names we call things often dictate the way we feel about them. For example, those who support abortion want to be known as “pro-choice” rather than “pro-abortion.” The preference is interesting in that it reveals that, even among its supporters, abortion is not really something worthy of support. “Choice,” however, sounds a lot like “freedom,” and hence is worthy of our highest support. Of course, since the “choice” is the choice for abortion, there is not really a functional difference between the terms; it is merely a matter of marketing.

By the same token, the anti-abortion movement would prefer to be known as “pro-life.” Here the situation is completely different, because while being pro-life means being anti-abortion, being anti-abortion doesn't necessarily mean being pro-life; the different names really do designate different things. One can be anti-abortion on narrow moral grounds, on political grounds, or just out of a certain fastidiousness. But families do a lot more than just give birth, and life is more than just its beginning. A true pro-life movement could be—and should have been—the foundation of a new Catholic politics. This is crucial because after Vatican II, Catholic politics in America severely deteriorated. What had been a strong presence dwindled so that there was very little difference between the Catholic voter and the rest of the population. The strong pro-worker bias of Catholic politics became bifurcated into radical divergent wings and highly partisan. But a pro-life party could have found areas of agreement between the factions and become a true “centrist” movement.

What would a “pro-life” agenda look like? Mostly, it would be pro-family:

Pro-Family Wage. Wages have stagnated for 30 years; in fact, the median wage has declined in the face of vastly increased productivity. This has put pressure on women to enter the work force, limiting their freedom to be full time mothers and home-makers. The Just Wage is intrinsic to Catholic social teaching and a pro-family policy. Without it, you cannot be a pro-life party, and certainly not pro-family.

Pro-natalist. The bias of both law and policy should support families and particularly large families. American politics has been caught in the grip of a false Malthusian doctrine, one that is disproved in generation after generation, yet still holds sway in the culture. Further, the accepted neoclassical economic doctrines privilege capital over labor. This is a direct result of a Malthusian outlook which makes people problematic and wealth an end in itself. Capital is thought to be the true source of wealth, while labor is just a drag on profits. What the economy needs first of all is a supply of workers and consumers, and if we don't “produce” these ourselves, people will come across the border—legally and otherwise—to fill the spaces we have left vacant.

Pro (Marian-)Feminist. Secular feminism doesn't seem to differ much from anti-feminism, and leaves women in an ambiguous place in the society. But in such a masculinity culture such as ours, a real feminism would be a real gift; we affirm not merely the dignity of women, but even more we affirm that women do tend to have a different spiritual and psychological outlook. Thus women make a unique contribution, not only in birth but in every aspect of life, but they need freedom to make this contribution. And the first freedom that women need is the freedom to be mothers. Currently society makes this very difficult. Usually, they must be mothers in addition to all the burdens of wage-earners. Sarah Palin seems to be the modern model, where the needs of the family are subordinated to the needs of the career. This is not real feminism; women in this model must be like pit bulls (that is, like their male counterparts) with lipstick. Some women, I'm sure, will find that appealing. But others will not, and the current culture of death favors the pit-bull view.

Pro-education. The education system has failed in this country, and even the college-educated are often functional illiterates. A pro-education policy would include both public and private schools, and even (or especially) home schooling, since the primary authority and responsibility for education remains with the parents. But for this to be the case, the first three points in this list must also be true.

Pro Just War Doctrine. A Catholic party would not be pacifist, at least not when home and hearth were truly threatened. But it would be opposed to most of the wars we have actually fought. Nothing this side of divorce quite disrupts a family like sons and fathers (and increasingly today, mothers) marching off to war. This should only happen when the war can be unambiguously squared with the just war doctrine.

Pro-employment. A pro-family policy would not subordinate the needs of the economy to globalist doctrines. Families need work, and providing that work is the first duty of the economy and economic policy. We would make intelligent trade decisions that truly benefited both sides (the only kind of just agreement) and not merely imported poverty.

Other issues would be seen in a new light by a Catholic pro-family movement. For example, health care. Now, one may be for it or not, but surely a pro-natalist policy would ensure that every mother had access to pre-natal care and basic health care for her children, regardless of her economic status. A pro-family politics even sheds light on city planning. Is the vast separation of working, shopping, and living quarters really conducive to family life? Should the subsidies to such centripetal forces that spread cities out (subsidies such as the “freeways”) really just a hindrance to family life, a hindrance supported with public money?

A pro-life polity is not so much a group of programs as it is a new (and counter-cultural) was of looking at things. It allows us to work with a variety of people at different levels, and so bridge merely partisan differences in American politics. For example, we can work with Fundamentalists who may merely be anti-abortion, and with Evangelicals who are pro-family, and with Democrats who want to improve the worker's situation, and with Republicans who want to restore virtue in public life, etc. More importantly, it allows us to showcase the richness of Catholic Social Teaching, and is therefore a tool of evangelization. It allows us to display the love of Christ and say with St. Paul, “Look at these Christians, how they love one another.”

With all that in mind, we can ask, “Is the current pro-life movement really pro-life or just anti-abortion?” Before I answer that, let me relate the phone call which prompted these ruminations. A reader of this review called to say that his parish priest had told him that a vote for Obama was a mortal sin and put his soul at risk. Now, as a mere matter of canon law, the priest exceeded his authority; such pronouncements can only be made by competent authority, and that authority is not the parish priest. If the priest's bishop has made such a pronouncement, the priest may repeat. But he has no authority to make this ruling on his own. However, if the priest is right, if voting for a candidate who supports abortion is a mortal sin, then neither can one vote for John McCain, who supports abortion in cases of rape, incest, and when the mother's life is in danger. We know from past experience that these exceptions turn out to be nearly identical to abortion-on-demand. Further, McCain supports federal money being used for new lines of embryonic stem cell research, which not only requires abortions, but actually creates a market for aborted children. Perhaps the priest in question supports this because it will be a free market. Now, one may argue that McCain is slightly better on abortion and therefore deserves our vote, and that's fine. But surely the difference is not enough to compel our vote.

The priest in question is subverting the power of the confessional for purely partisan political purposes. This damages Church authority and violates canon law; Christians should be able to go to confession without receiving a political diatribe. At all times, the Church must speak out on particular issues and at some times must prohibit a vote for particular candidates. But this is function of competent authority, and not a priest subverting the confessional for partisan political purposes on hypocritical grounds.

But the incident does serve as a metaphor for the political wing of the anti-abortion movement. It has never been a pro-life movement, and has always subordinated the totality of Catholic Social Teaching to the needs of the Republican Party. This might even be justified on the grounds of pragmattic politics. But in fact, 35 years of slavish devotion to the Republican Party has produced very little in the way of results. They make a few statements, toss of few crumbs our way, but mostly treat us with contempt, the same kind of contempt that useful idiots and fellow-travelers deserve from their ideological masters. The truth is that the Republicans have appointed 70% or more of all the judges in this country, and if they had wanted to shut down Roe v. Wade, they could have done so a long time ago. But they do not and will not. I doubt if a single life has been saved by our political action, and many other parts of Catholic Social Teaching have been severely compromised on the political level. I do not know how the National Right to Life Committee is funded, and they do not publish a list of donors. But they certainly act as if they were a wholly-owned subsidiary of Fox News and Entertainment, with Rupert Murdoch as the sole proprietor.

This is not to say that people who actually work the issue have not been effective. Those who walk the picket, who pray for the mothers and babies, who counsel mothers facing difficulties, who adopt babies, who establish orphanages, and who show the love of Christ in a hundred over ways, have actually saved lives and won souls for Christ. But they are being betrayed by the NRLC.

The Republicans have not paid very much for the devotion given them by the pro-life voters, voters who usually provide their margin of victory in election after election. They are not even an anti-abortion party, much less a pro-life party. Rather, they are a “Big Tent” party, content to accept our support, especially when it is offered so cheaply and with so few conditions. Lip service is enough. Indeed, abortion was originally supported by the Republican Party under the Libertarian rhetoric of “get the government off my back and out of the bedroom!” Conservatives forget that before Roe v. Wade compelled the states to allow abortion, California did so voluntarily, and did so with the support and the signature of Governor Ronald Reagan. His conversion to the cause only came after he saw its political power to seduce a lot of Catholic voters. The result of giving our votes so cheaply is that we now have one-and-a-half pro-abortion parties and one-half an anti-abortion party.


The End of Empire

All empires collapse. Some have a shorter shelf life than others, but all eventually share the same fate. The Roman empire survived in the East until 1453, and survived (at least in name, if not in fact) in the West until the 1806. But it collapsed. The Soviet Empire also collapsed, nearly instantaneously, by Roman standards. The United States has been around along time by modern standards. Our political regime is actually older than any other in the world right now. The British monarchy is older, but survives mostly as a living tourist attraction and drain on the public treasury, rather than as a real political regime. Despite being a "young" country, we actually the longest-running continuous political regime on the planet right now. Older than anybody. Can we continue? Empire is an expensive proposition, a hobby of the rich. Are we rich enough to maintain our empire?

Here is a truly interesting presentation by Dmitry Orlov about the comparisons between the collapse of the Soviet empire and the (rapidly approaching collapse) of the American empire. One does not need to agree with Mr. Orlov entirely, but his analysis is useful. It is at least amusing, and that's always worth something in an election season. His observation on American elections:

It is certainly more fun to watch two Capitalist parties go at each other than just having the one Communist party to vote for. The things they fight over in public are generally symbolic little tokens of social policy, chosen for ease of public posturing. The Communist party offered just one bitter pill. The two Capitalist parties offer a choice of two placebos. The latest innovation is the photo finish election, where each party buys 50% of the vote, and the result is pulled out of statistical noise, like a rabbit out of a hat.


Chapter XII: Taxes and Tax Reform

This is the twelfth chapter in Equity and Equilibrium: The Political Economy of Distributism. The draft of each chapter is posted as it is written, in order to get some help form my readers about what works and what doesn't. All comments and critiques are welcome.

The Fourth Factor

Thus far, we have been speaking of economics in terms of three factors of production, land, labor, and capital. This way of speaking has a long tradition in economics, but in fact there is a fourth factor: government. Production takes place within a framework of laws, institutions, and improvements such as roads, schools, airports, coinage, national defense, courts, etc. There are those who claim that these things can be provided apart from government. That may indeed be true, and for some things it must be true. However, since it has never happened, in all of human history, that all of these things were supplied apart from the government, we have no such systems to examine, and hence we can safely leave that argument to the higher realms of economic speculation, and concentrate on what actually occurs in the real world.

Are Taxes Theft?

Unfortunately, all of these things have a cost and need to be paid for. Typically, they are funded through taxation. “All taxes are theft” proclaim certain libertarians. Perhaps. But the claims would have more force if libertarians would refuse to call the police when their homes have been robbed, or the fire department when they are burning. One could say that this holds the libertarian to too high a standard, since we must all live in the world as it is and obey its rules. But since we do live in the world, we must pay for the services we consume; this is not theft, it is simply being an adult.

Nevertheless, even if we cannot agree that all taxes are theft, we might agree that most taxes are, or at least are ill-considered, poorly administered, unfairly allocate the burdens of government, negatively impact production, are expensive to administer, intrusive into the private life of citizens, and a host of other complaints as well, all of which are valid objections. From both the right and the left, we have a near-unanimous consensus that something is wrong. Unfortunately, they cannot agree on just what is wrong. Reform proposals abound, but none have sufficient political support to gain any traction. The major disputes concern two issues: the progressive nature of taxes (whether those who make more should pay a proportionally higher rate) and the whether income from capital ought to be privileged over income from labor, or even whether such income should be taxed at all. On the left, the principles of progressive taxation and the taxing of capital are generally agreed upon, and reform is simply a matter of adjusting the existing code to realize these principles more perfectly. But on the right, there are at least two proposals which eliminate or seriously compromise the progressive nature of income taxes and reduce or eliminate taxes on capital income. These proposals are called the flat tax and the fair tax. Examining these proposals will give us some insight into the nature of income taxes.

The Flat Tax

The flat tax replaces the current graduated tax rates with a single tax rate applied to all incomes. The rate is designed to be “revenue neutral,” that is, to raise the same amount of money for the government that the current income tax does. And if that were all it was, the debate would be confined to the question of whether taxes ought to be “progressive,” that is, whether those with a higher income ought to pay a greater share of that income. However, most flat tax proposals go far beyond this to radically redefine the very notions of income and cost accounting.

The flat tax would have a single rate, usually about 17% in most proposals, and also eliminate all deductions, except a standard deduction, usually about $12,000 for each adult and $6,000 for each child. Proponents of this plan say that all the complex tax forms can be reduced to two postcards, one for individual payers and another for businesses. The individual postcard would simply have a line for “income,” a line for the standard deduction and another for the 17% tax rate. The business postcard would have a line for revenues, another for cost of goods sold, and any positive difference between the two would be taxed at 17%. The business taxes would exclude income from interest, dividends, rents, and capital gains. Proponents believe that they can get the nine-million word tax code down to a few pages. It should be pointed out that the “postcard” form for individuals already exists, the 1040EZ, which although it is not printed on a postcard, could be and still remain legible.

The first problem with the flat tax is that it only replaces current income taxes, not the Social Security and Medicare taxes. These taxes come to 15.3% when the employer's contribution is considered. Therefore, the average worker will have all of his income taxed at 15.3%, and any amount over the standard deduction taxed at a total of 32.3%. This is close to the 35% currently paid by those with the highest incomes on the last portion of their income. Further, since the wealthy earn a higher proportion of their income from interest, dividends, rents, and capital gains, a large portion would not be taxed at all. The result would be a massive shifting of the tax burden from the rich to the middle class; people at the bottom would continue to pay the FICA taxes, as today, the people in the middle would have their total tax increased to 32.3%, and the rich would see their taxes substantially lowered or eliminated entirely. To put it another way, the rich will pay approximately what the middle class now pays, while the “middle class” (defined as anybody making more than the poverty level) will pay a marginal rate equal to what the rich now pay. And those among the rich whose income is completely from capital (dividends and interest) will see their taxes abolished entirely; they will be “taxed” as if they were desperately poor, at a 0% marginal rate.

Indeed, any “revenue neutral” scheme can only shift taxes, not lower them, by definition. If everybody pays the same rate, and if that rate raises the same revenue as the current system, then some must be paying more and other less. Proponents of the flat tax counter that fairness demands equality under the law, while opponents argue that fairness demands a higher rate from greater incomes. But whatever the outcome of the moral argument, the economic argument is dubious. The poor and middle class would lose precisely what the rich will gain. The resulting reduction in the take-home pay of the average worker must have a negative impact on aggregate demand. The rich simply cannot spend or invest their increased incomes fast enough to make up for the losses in wages. This is a phenomenon known as the velocity of money. Money simply moves faster (is more efficient) at the lower end of the income scale. For example, if you give a dollar to a poor man, he immediately takes it to lunch, or spends it to fulfill some other pressing need. But if you give the same dollar to Bill Gates, he doesn't know what to do with it. It fills no immediate need and takes a long vacation before it does any work. During that vacation, it represents purchasing power lost to the economy.

But that is not the only problem with this scheme. The two real problems are, one, the flat tax radically changes our notions of financial accounting, and; two, it conflates “exemptions” with “loopholes.” To take the latter problem first, an “exemption” is some provision in the tax code that allows a person or firm to deduct some specific expense, such as charitable contributions or mortgage interest, from their income. There are thousands of these exemptions in the tax code, most of which benefit some preferred business group. But while an exemption is something specifically addressed in the tax code, a loophole is just the opposite: it deals with situations that are not addressed in the code, but which arise in real business situations and about which the taxpayer is allowed to make his own ruling, a ruling he usually makes in his own favor. There are excellent arguments for eliminating all or most of the exemptions; there are no good arguments for multiplying loopholes. Exemptions are eliminated by repealing portions of the tax code, but loopholes are eliminated by adding to it. The fair tax proponents want to “slim down” the 60,000 page tax code to a few pages. But while this will eliminate all the exemptions, it will multiply the loopholes exponentially.

Why? This brings us to the first issue, the treatment of revenue, expenses, and income as simple and uncomplicated notions. But this is not so. If you ask an accountant how to compute a firm's expenses or income, and they will point you to the Financial Accounting Standards Board's rulings, which run several volumes, and which are always growing as new situations arise. No tax code that deals with income can be any shorter than the Generally Accepted Accounting standards, and in fact must be some multiple of them, since the accounting standards allow wide latitude in the choice of methods, a latitude that would simply allow businesses to choose their reported income, which would, in effect, abolish any tax on business. Income taxes can only work to the extent that they are intrusive and complex, and any attempt to “simplify” them turns the tax code into a series of loopholes that benefit mostly the rich and shift the entire burden of taxation onto labor.

The fair tax plan also makes some other rather odd changes to financial accounting. All capital expenses would be 100% deductible in the year they were made, rather than amortized over the life of the capital goods purchased. This, in effect, converts financial accounting from an accrual basis to a cash basis. In fact, the flat tax as it applies to business is really a cash-flow tax rather than an income tax. A business would pay no taxes on its investment income, but interest expense would not be deductible, which sounds bizarre. Equally bizarre is the provision that payments for “fringe” benefits, including the employer-paid social security tax and health insurance, would not be deductible. This would force these payments to be made as “wages” and therefore taxable to the employee at the 32.3% rate. It is hard to interpret this provision as anything but a direct and gratuitous attack on labor.

The “Fair” Tax

If incomes cannot be taxed without an intrusive and complex code, what about consumption? This is the idea behind the so-called “fair” tax, which is actually a National Sales tax of 30%. Unlike the flat tax, this tax would replace all income, social security, and medicare taxes, and would be levied on purchases of new goods and services by all consumers and governments. Business purchases would be exempt. “All” purchases here means just that: cars, homes, medical services, drugs, food, insurance policies, etc.

Since a 30% tax would cripple the poor, a monthly “prebate” would be given to all citizens, equal to a “consumption allowance” calculated to be near the poverty line. For example, a single person would have a consumption allowance of $10,400/year, and 23% of that amount would be “prebated” to him on a monthly basis at a rate of $199/month. A family of four would get a prebate of $567/month. This amount would go to all citizens, whether they were poor or not; everyone would be on the welfare system.

Fair tax proponents believe that the entire Internal Revenue Service and its army of agents could be eliminated because the current state sales tax agencies would collect the tax. They argue that the accounting expenses of the tax code would be eliminated, prices would go down because there are no tax expenses on production, that there would be no deductions on paychecks so that workers would keep all that the earn. Further, the proponents claim that there would be no room for fraud. All of these claims can be easily shown to be false or even fraudulent.

The first problem is that fraud would be rampant, and the new system creates many opportunities for fraud. The first opportunity is that all business purchases are exempt. But since the elimination of the income tax means that businesses no longer report their incomes to the government, everybody will want to declare themselves a “business” and exempt all of their purchases. Without auditing their books, it will be impossible to know whether or not they really are a business or just a tax dodge. In order to prevent such fraud, you would have to have a reporting system similar to the one that is already in place. The second opportunity for fraud comes from legitimate businesses converting all of the living expenses of their owners or employees into business expenses, thereby making them exempt from the tax. Without auditing their books, it will be impossible to say if the expense actually is a business or a personal expense. The third source of fraud comes in the exemption for “used” goods. The plan does not define a “new” and “used” good, nor the method to distinguish between the two. The simplest way would be to define a “used” good as something upon which the tax had previously been paid. But this would require an enormous record-keeping system, and the system would be easy to avoid. For example, suppose a builder had a new home valued at $300,000, upon which a tax of $90,000 would have to be paid, for a total price of $390,000. Instead, he “sells” it to a confederate for $100,000 plus the tax, now $30,000. Now he has a “used” home, and can sell it for what he likes with no tax He sells it for $360,00, pays his confederate a commission, and undersells his competition by $30,000. But the biggest source of fraud would be in false identification papers. Since every citizen is entitled to a prebate, the traffic in manufactured id's will be tremendous. No self-respecting crook would be without at least ten social security cards, and the prebate that goes with them. Short of the establishment of a police state, it would be impossible to monitor all citizens closely enough to see if they were real persons or imaginary ones.

Nor would this proposal eliminate the IRS. On the contrary, it would vastly expand its powers. It is true that most states have a mechanism for collecting sales taxes, but they all operate under different rules. And no state has a sales tax that intrudes into the doctor's office, home sales, insurance payments, and every other possible purchase. All 50 state departments will have to be put under the direct supervision of the IRS. Further, and a vast welfare apparatus will have to be created to pay the prebate, a welfare department that will cover every citizen, whether real or fraudulent. This would constitute the largest expansion of government intrusion into the life of its citizens since the establishment of the income tax itself.

The proponents of the fair tax claim that pre-tax prices would go down by an amount equal to the tax itself, since businesses would no longer be paying any taxes. But it is not at all clear that this would happen. Certainly, some prices would go down, for items made in this country by firms in highly competitive markets. But this is hardly true of all products, or even most of them. For example, it will have no effect on the price of oil; the Arabs will not give us a break because we have an unreasonable sales tax. Indeed, it will have no effect on imports in general, and they are, alas, a large part of our consumption. In truth, nobody can know what the effects of such a tax would be, because it constitutes the biggest government intervention into free-market pricing ever contemplated since the Russian Revolution; we simply have no experience to guide us in assessing the effects of such a massive intervention.

One cost that would go up under the fair is the cost of state and local government. This is because government purchases are taxed under this plan. And these governments, unlike everybody else, are not likely to engage in tax dodges. Now, at the federal level, this makes little difference; the government both pays and collects the tax; there will merely be some additional bookkeeping costs. But state and local governments will have to raise property and other taxes to pay for the 30% increase in the cost of their purchases.

Finally, for people who must consume all or most of what they make, a sales tax is the equivalent of an income tax; all of their income must be converted to purchases. Every dollar earned beyond the poverty rate will be taxed at 30%, a rate near what the rich pay on their last dollar earned.

Is Reform Possible?

I could offer further critiques of both of these tax plans, but the more interesting question is why two such obviously flawed—indeed, harebrained—tax schemes could generate such support and loyalty. Part of the reason is ideological. People raised on standard economic theory tend to believe that it is wrong to tax capital in any way; they have been taught that capital is the driver of growth, and taxes on capital limit growth more than any other tax. Hence labor, and labor alone, must bear all the burden of taxation. Whatever the differences in these plans, this is the one point upon which they agree. Now, it is certainly true that a tax on anything limits that thing. Hence, a tax on capital limits capital formation (to what degree, however, is debatable). However, a tax on labor limits labor, and labor, not capital, is the true source of all economic values. To limit labor is, therefore, to eventually limit capital formation; the two have the same source.

The second reason is that people are genuinely disgusted with the intrusive nature of the income tax and the government bloat that seems to accompany it. All of our financial dealings must be reported to officers of the state, which is sure to make us all uncomfortable, even when we acknowledge the necessity of paying taxes.

The third reason is that people see the tax code as nothing but a network of loopholes, a veritable tunnel system that allows the rich and well-connected to get around any meaningful taxation, and they believe that these systems will somehow change that. Of course, the “reforms” will just make this worse, but it is the perception rather than the reality that counts in politics.

If the flat and fair taxes are not a practical basis for tax reform, are we limited to fiddling with the various rules and rates that make up the current codes? We have seen this kind of “reform” for the last 30 years and especially in the last eight. The results have not been encouraging. Even in the so-called “recovery,” growth rates were sluggish and seemed to be driven not by any real growth, but by a mere credit bubble in housing, a bubble that is now collapsing with disastrous consequences. Indeed, during this time, the median wage actually fell. And above it all, the debt of the United States is expanding at a dangerous rate, a debt that whose interest now comes to $429 Billion per year and rising.

If the Republican plan has been a disaster, will a “reform” in the other direction work? Obviously, it will work as well (or as poorly) as it worked in the past. These reforms generally have the effect of broadening the tax base to include more capital income, and redistributing that income. This has the effect of giving a slight preference to labor, or would if all the odd exemptions are eliminated.

All of these debates center around the question of whether capital or labor should get preferential treatment. But is this really a rational question? On the one hand, it seems bizarre to tax the labor of a man who digs ditches for a living, while exempting the “labor” of another who only clips coupons. On the other hand, if the bonds that the coupon-clipper clips represent savings from his past labor, his prior-period ditch-digging, why should he be penalized in any way? So the real question is, “Should labor and capital be taxed at all, or, if they are, should the be the primary source of government revenue?”

From our current perspective, this question is astounding. Income taxes are the mainstay of the federal budget, most state budgets, and even many city budgets. Could these taxes be abolished or significantly reduced without wrecking all public finances? What could possibly replace them? However, income taxes are not a constant in human history, nor even in American history. The founders recognized the possibility of an income tax and and prohibited them in the constitution. It was not until the 16th Amendment was passed in 1913 that the tax had a legal basis. The tax was originally 7% of incomes over $500,000, an enormous sum in those days that would likely have affected a few hundred persons at most. Therefore, the income tax was really on tax on concentrated wealth. But under the pressure of war, debt, and depressions, the rates went up and the minimum income level went down, so that it quickly became a labor tax.

Historically, such taxes have always been regarded as suspicious, or even a sign of oppression. In 1381, for example, when Richard II imposed a poll tax (essentially, a labor tax), the result was Wat Tyler's rebellion, which gathered widespread support across England and quickly captured London and the King. Tyler nearly succeeded in establishing a republican form of government in England centuries before it actually happened, and would have done so, had not Richard reneged on the promises he was forced to sign and had Tyler killed after his army disbanded. Would that we were as conscious of our rights as were the medieval peasants.

But if we exclude or severely limit these taxes, what is left? An age that requires battleships for defense and freeways for transportation might be somewhat more expensive to run than 14th century England. How will we finance such things? That question can only be answered if we first answer some questions about the scale and scope of government, and the government's role in producing the wealth and prosperity that we all share, or wish to share. These questions are the subject of the next chapter.


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