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

– By: Michael D. Greaney – The Just Third Way

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

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

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

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

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

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

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

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

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

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

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

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

  1. A limited economic role for the State,

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

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

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

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

Via: The Just Third Way Blog

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

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

– By: Michael D. Greaney – The Just Third Way

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

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

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

Continued at: The Just Third Way Blog

Image via: MarineBuzz.com

Obama’s Failed Jobs Subsidy | 99 Weeks

“Government does not solve problems; it subsidizes them.” ~Ronald Reagan

– Policies Have Consequences

– By: Larry Walker, Jr. –

Since 1948, the average duration of unemployment in the United States, has rarely exceeded twenty weeks. In fact, up until February of 2009, the average had only exceeded twenty weeks for a total of 8 out of 721 months. To be specific, the average exceeded twenty weeks for five months consecutively in 1983, for the month of January 1984, and for two non-consecutive months in 2004. But since February of 2009, the month after Barack Obama’s inauguration; the average duration of unemployment has exceeded twenty weeks for his entire 29 month term. But more significantly, the average has doubled under his Hope & Change regime. The average duration of unemployment has skyrocketed from 19.9 weeks in January of 2009 to 39.9 weeks through June of 2011. So what’s up with that?

From Average Weeks Unemployed

I am reminded of the old Chinese Proverb, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” It may also be deduced that to borrow a fish and give it to a man, is to impoverish oneself; and that a nation borrowing and giving a ton of fish to men for 99 weeks will in time bankrupt itself. Of course it doesn’t get any better when one proffers to steal and give away the fish. For one thing, you can’t give away what you don’t have. And of equal importance, the act of extending unemployment benefits for 99 weeks actually does more to discourage, rather than encourage, employment. Can anyone dispute the end result?

If you take a look at Table A-12 (above), from the Bureau of Labor Statistics latest report, two items stand out. First of all, the officially counted number of unemployed persons, per Household Data, increased from 13.7 million in May to 14.2 million by June of 2011 (a fact overlooked by many). Secondly, the average duration of unemployment increased from 34.8 weeks in June of 2010 to 39.9 weeks by June of 2011. As you may recall, the recession officially ended in June of 2009, so what’s causing this? The unintended consequences themselves dispute Obama’s errant theory that, extending unemployment benefits for up to 99 weeks would help the unemployed find ‘good’ jobs. No one can deny the outcome.

It was back in July of 2010, after signing a bill extending unemployment benefits to 99 weeks, when Barack Obama said, After a partisan minority used procedural tactics to block the authorization of this assistance three separate times over the past weeks, Americans who are fighting to find a good job and support their families will finally get the support they need.” Excuse me, but I fail to see how an extension of unemployment benefits could ever be used as a tool for landing any kind of job. Exactly how does that work? As evidenced by the end result, not very well. And although unemployment benefits may help to support a family, when I was on unemployment for two weeks (many years ago), after having been furloughed by the federal government, it didn’t take any longer than that for me to figure out that my family of five could not survive on an unemployment check. So what did I do? I got religion, and found another job. “Finding a job is a full-time job.” ~Unknown

“Keep on asking, and you will receive what you ask for. Keep on seeking, and you will find. Keep on knocking, and the door will be opened to you.” ~Matthew 7:7

I recently spoke with an acquaintance, who stated that he was going to have to get back to work soon, because the $1,200 per month check he had been getting for the past two years was about to run out. I thought for a minute, and then put two and two together. What he was saying was that he really wasn’t trying very hard while the unemployment checks were coming in. But as soon as the government-subsidy to not work came near an end, he knew he would have to get off of his behind and do what, for the past two years, he had no incentive to do. He also indicated during this dialogue that he had been doing some self-employed work on the side, using the government handout as a backstop. I’ve overheard a number of other people saying that they were working full-time jobs while continuing to collect unemployment checks as well, a behavior which I strongly condemn.

But this is really the government’s own fault. A government-funded, deficit-financed, subsidy to not work will always be respected for exactly what it is – free-money, carelessly doled out by a lackadaisical, sugarcoating, and weak-kneed Administration. It’s nothing more than an act of cold-blooded kindness. The act of extending unemployment benefits to 99-weeks has produced exactly what such a program should – an increase in the average duration of unemployment. If the big-time, millionaire, POTUS had an ounce of honesty; he would admit that you can’t support a family on an unemployment check, and that extending unemployment benefits doesn’t help anyone find a ‘good’ job. What sounds kind isn’t necessarily true. It is rather the threat of losing governmental assistance which produces the swift kick in the rear, necessary to inspire action.

When I took public transportation half way across town for four months, to a minimum wage job, to push a mop and empty trash cans, often standing at a bus stop in the pouring rain, I complained to no man. With simple faith in God, and a belief that He helps those who help themselves, it dawned on me one day that, ‘it really didn’t matter what I did for a living’. ‘If I showed up everyday, and performed my job to the best of my ability, promotion would come from above.’ And promotion did come, and in short order. Government has never been the solution to my problems, but for many unemployed persons today, government is the problem.

I have wondered at times how many people are really just lying around thinking that their lives would be so much better if only millionaires and billionaires would contribute more of their money to the federal government. If you listen to Obama’s rhetoric long enough, you would think that there is a whole class of envious people sitting around somewhere dwelling on this thought, every waking day. But hopefully it’s just him. Whatever happened to words of encouragement?

“Industry, thrift and self-control are not sought because they create wealth, but because they create character.” ~Calvin Coolidge

There was a day when I found myself jobless, homeless and broke. I didn’t have an unemployment check, or any other kind of governmental subsidy. When I checked into the local homeless center for a week (a center that I still donate to today), I wasn’t sitting around wishing I had someone else’s money. To the contrary, I was engaged in doing whatever I had to do to get out of there, and to get back on my feet. Pulling yourself up by your own bootstraps used to be thought of as a noble feat, and in my view it still is. After all, doesn’t God help those who help themselves? Yeah, I went through some hard times, and worked some low paying, back-breaking, temporary jobs. But within three years of utter destitution, I had a good paying managerial job; good enough to buy a modest home, a car, to get married, and to move on to the next level. I haven’t looked back since.

So how much is the federal government squandering on this failed, so called, jobs program? Well, per the President’s own 2012 historical budget, federal spending on unemployment compensation reached a record high of $166.2 billion in 2010, eclipsing the previous record of $127.6 billion in 2009. Prior to this, the old record of $57.4 billion was set in 2003. And in case you’re wondering, total spending on unemployment in 2007 and 2008 was $35.3 billion and $45.6 billion, respectively. So not only has Obama’s misguided policy doubled the average duration of unemployment, but it has exceeded the previous spending record by 189%. Chalk up two more historical, extraordinary accomplishments for Obama.

From Average Weeks Unemployed

If I was engaged in the battle to reduce government spending, the first thing I would do is cut unemployment back to the traditional 26-week benefit. If government wants to reduce the number of unemployed, the best thing it can do is get out of the way. That’s right! There are jobs available now, but people are not going to take them until the government pacifier is withdrawn. I thank God for every back-breaking, low paying, non-unionized job I ever had. To be blunt about it, if you are an adult, and can’t find work within 26 weeks, in the United States of America, it’s not because there aren’t any jobs, it’s because you’re not trying. I tell that to my children, who are all working now, and I will say it to anyone who has ears.

“Go to the ant, you hater of work; give thought to her ways and be wise.” ~Proverbs 6:6

Here are some more words of wisdom that will stick with me for the rest of my days: “Do what you don’t want to do, and don’t do what you want to do.” | “Grow up or die.” | “If you don’t work, you don’t eat.” | “Get in where you fit in.” | “Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.” ~Proverbs 21:5

What? You don’t like this? Too bad! It’s time we had leaders who tell the people what they need to hear, and not what they want to hear. It’s time to take our ideals back. It’s time to restore integrity. It’s time to judge men and women by the content of their character. It’s time to get government out of our way and off of our backs. It’s time for another shellacking. It’s time for the community destabilizer to shape-up, or ship-out.

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” ~Ronald Reagan







Link to Data:

Data Tables