Our system of government is a republic, and it is fatally flawed.

In history’s long train of national governments, when tyrants, kings, queens, emperors, empresses, and the like, held transformative power, life-and-death power, over the people of their nations, the appearance of Athenian democracy was a signal event—an event not average or ordinary, but remarkable, and notable. It still stands out as a rarity, not only for the great differences between it and all other forms of government, but also for the fact that we moderns have dismissed it as a myth, as not real, as something to be hated, even feared, while we simultaneously and proudly claim that we, too, are a democracy, but a different democracy, one that is better than that of ancient Athens. We disparage Athenian democracy as a system that condoned slavery, and treated women as second-class citizens. But as we besmirch the magnificence of the Athenian system, we create another myth. We ignore the fact that we treat seven hated groups as second-class citizens: the not-male, the not-Christian, the not-heterosexual, the not-white, the not-well-to-do, the not-native-born, the disabled—and we are headed toward debt-slavery (some might argue that we are already there).

Our hubris is so great that we believe we can ignore the laws that are laid out in the Book of Nature—the one true word of God. Many of us believe that we can ignore God’s laws—the laws of physics and chemistry—while others believe that God loves us so much that He will forgive our arrogance and miraculously cleanse the atmosphere of greenhouse gases, and return the oceans to the powerful, life-giving, and life-protecting forces they once were.

The Framers of our Constitution, particularly James Madison and Alexander Hamilton, may well be the fathers of our misunderstanding of Athenian democracy. In several of the Federalist essays they heaped untruths on the ancient system, as justification for rejecting democracy and embracing republicanism. Their criticisms were wrong, but they were not to blame. At the time our Constitution was written the histories of ancient Athens were wrong. It was not until 1846, long after all the Framers had passed away, that George Grote, a British banker, began to publish a series of volumes that set the record straight. Ever since, modern historians have added to his revelations and now there is a great store of data which shows that Athenian democracy was a great success, and that many of its features can easily be adapted to improve our republic, turn it into a real democracy, and solve many of the political problems that plague us today, which, if we choose to be rational and adapt the Athenian improvements, may come just in time to free us to battle the onrushing catastrophe of global warming.

In short, the path to save the world goes through ancient Athens.

It is ironic, and could be bitterly so, that even though the Framers hated and rejected democracy, they understood that the republic they chose as our form of government contains a fundamental flaw and they understood that they had no way to overcome it. The irony is compounded by the fact that the Athenians understood the flaw millennia ago and they had a solution. James Madison and George Washington understood the danger and they warned us about it—Madison in his Federalist 10, and Washington in his Farewell Address. The flaw is this:

It is a fact of human nature that some men naturally, unselfishly, work for the common good and other men naturally, selfishly, work against it. Any government that does not contain a way to prevent such selfish men from getting control will fail.

Our system lacks that essential safeguard. Our republican system was not new, its faults were well known, and we have suffered many instances in which our government has mistreated us, the people, particularly the seven hated groups. Our flawed system has allowed men who have financial interests in maintaining our dependence on fossil fuels to win government power and block all efforts to save us from ourselves.

These groups of men who work against the common good, were noticed and defined by James Madison:

By a faction, I understand a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adversed to the rights of other citizens, or to the permanent and aggregate interests of the community.[i]

Factions, by Madison’s definition, are always bad things. Factions are made up of human beings, and they always work against the common good. Because any social organization reflects the nature of the humans who control it, the men who form factions are therefore naturally inclined to work against the common good. There is a more benign definition of faction that is in common use today. Many people seem to think of faction as simply a quarrelsome subset of a political party, sometimes irritating, other times worrisome, but rarely dangerous. That form of faction is like a wart on the back of one’s hand. But Madison’s form of faction is a cancerous tumor growing in one’s body which, if left unchecked, will kill its host.

The Framers went to the trouble to describe the characteristics of these men who work against the common good. In Federalist 1, Hamilton said (emphasis added):

Of those men who have overturned the liberties of republics, the greatest number have begun their career by paying an obsequious court to the people; commencing dema­gogues, and ending tyrants.[i]

In Federalist 10, Madison said (emphasis added):

Men of factious tempers, of local prejudices, or of sinister designs, may, by intrigue, by corruption, or by other means, first obtain the suffrages, and then betray the interests, of the people.[ii]

Later, near the end of his second term as President, George Washington published his Farewell Address, and said this about men who form and control factions (emphasis added):

They [factions] are likely, in the course of time and things, to become potent en­gines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people.[iii]

I made a list of the definitions of the words I emphasized in the preceding quotations and found that the Framers had identified the characteristics of very dangerous men: [iv]

  • factious—“addicted to form parties or factions and raise dissensions
  • prejudice—“an unreasonable predilection, inclination, or objection”
  • sinister—“evil or productive of evil”
  • intrigue—“to cheat or trick”
  • corruption—“impairment of integrity, virtue or moral principle”
  • betray—“to prove faithless or treacherous to”
  • obsequious“exhibiting a servile and sycophantic complaisance”
  • demagogue—“a politician who seeks to gain personal or partisan advantage by specious or extrava­gant claims, promises or charges,”
  • tyrant—“an absolute ruler unrestrained by law or constitution”
  • cunning—“marked by wiles, craftiness, artfulness, or trickery in attaining ends, ability to mislead or trap,”
  • ambitious“eager for rank, fame or power—pretentious, showy,”
  • unprincipled—“a lack of moral principles—conscienceless,”
  • subvert“to bring to nothing, destroy, or greatly impair the existence, sovereignty, influ­ence, wholeness of, especially by insidious undermining”

The Framers were describing men who were troublemakers, who were inclined to do evil, who were not trustworthy. They would lie to get what they wanted, and they were without personal integrity. They were cunning, they would lay traps for the unwary, and they had no conscience.

At the time our Constitution was written, factions were already forming and they were often called “political parties.” In fact, “faction” and “party” were synonymous. James Madison’s definition of faction would apply to the Democratic and Republican parties of today. They are filled with men (and some women) who naturally work against the common good.

James Madison compared democracies and republics. He said:

The two great points of difference between a democracy and a republic are: first, the delegation of the government, in the latter, to a small number of citizens elected by the rest; secondly, the greater number of citizens, and greater sphere of country, over which the latter may be extended.

Of these two points, the second is not a problem. Modern technology will enable us to have a worldwide democracy if we wish it. The first point of difference is key. It is the point that has enabled factions to get control of our government and use their power to mistreat the seven hated groups, and allowed the fossil fuel industries to control our legislatures and government regulators, and has allowed our economic system to work for the benefit of a few while forcing the majority of our population to “lead lives of quiet desperation.”

In his Farewell Address, George Washington deliberately addressed the deadly dangers of factions:

They [factions] are likely, in the course of time and things, to become potent en­gines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people.[i]

The alternate domination of one faction over another, sharp­ened by the spirit of revenge, natural to party dissension, which in different ages and countries has perpetrated the most horrid enormities, is itself a frightful despotism. But this leads at length to a more formal and permanent despotism. The disorders and miseries which result gradually incline the minds of men to seek security and repose in the absolute power of an individual; and sooner or later the chief of some prevailing faction, more able or more fortunate than his competitors, turns this disposition to the purposes of his own elevation, on the ruins of public liberty.[ii]

Washington perfectly describes the political parties of our era. Just watch CNN or MSNBC or FOX for an evening and you will see “cunning, ambitious, and unprincipled” politicians galore, and Donald Trump has been elevated to the highest office in the land from which he is trying to ruin our system of government.

Republics rely on elections. Elections lead to political parties which screen and groom candidates to support the policies of the parties. The candidates become beholden to wealthy donors and the people are forgotten. Because the Athenians did not rely on elections, political parties of the kind we suffer from today did not exist.

Over the years people have explained to me that our republic is really a “representative democracy.” Recently one of them called me a “half-wit” when I disagreed. But none of these “experts” have ever mentioned that our republic is actually governed by parties and not by the people. Such a government is not a democracy. These “experts” entirely overlook the role of parties in our government. In Chapter 5 you will see more discussion of the Framer’s dislike of political parties.

We cannot eliminate factions; we shouldn’t even try. There will always be men who naturally, aggressively, selfishly work against the common good, and they will always lie, cheat, and steal if we give them the power to do it. But there will be many more men who naturally, timidly, unselfishly work for the common good. So, we will eliminate elections. We will use random selection instead. No one will run for office because no matter how famous or popular they may be, they have no more chance than a college freshman at Swarthmore may have, or a bus-driver in Seattle, or the fast food worker at Whataburger in Corpus Christi, or you, or me, or someone you love, or someone you hate. By using random selection we will have government officials will reflect the makeup of our entire population. Young and old, rich and poor, and all the rest will have a voice in our government that is consistent with their proportions in our overall population. They will truly represent America, as it is. Under such a system, our government will be no better than we are as a people, but it will in any case, be better than our government is today. Our government today is always worse than the people.

In Faction-Free Democracy, I explain how we will use natural selection to choose our representatives. I talk about the way we will delegate power. Our rule of thumb will be: “small, narrow, and brief.” I talk about other ways we will use natural selection to choose people for tasks that will make America better.

Just as our current system of government is flawed, so is our system of economics. Changing our government so that factions cannot control economic policies will be a huge step toward improving the economic lives of our citizens. But our current system operates on the false premise that our supply of money is limited. But that is a false premise. Our supply of money is unlimited. We will use it to improve the economic lives of all our citizens, and we will use it to enable each citizen, from birth, to build a long life worth living for themselves and their loved ones. We will use our unlimited supply of money to give each citizen equal access to rights, resources, opportunities, and protections so that they can go as far as their talents and efforts can take them and will help them build a safe, comfortable retirement.

We will change the way we choose our representatives, and we will use a new model of representation.

We will greatly reduce income inequality and thereby reduce its negative effects.

We will change the way we tax. We will need a few sin taxes, and we will need a special form of taxation that will drain excess money from our system to guard against inflation. Beyond those taxes, we, the people, will essentially lead tax-free lives.

We will provide a free college education to any citizen who wants it.

We will eliminate credit card interest, mortgage interest, and interest on all other loans. Interest on loans is a sin, and we will sin no more.

We will provide all the funding needed for infrastructure maintenance and improvement.

We will provide all the funding needed to deal with the onrushing catastrophe of global warming.

We will fund a national health care system for all citizens. It will be like Medicare for all, except there will be no deductibles, copays, etc.

The minimum wage will be raised to a livable wage in all locations.

Every citizen will receive a Social Security Lifetime Stipend (SSLS) of $36,000 per year from birth to death, payable in monthly deposits in each citizen’s accounts at the Universal Bank of the United States (Uni).

Each month $1,000 will be deposited in each citizen’s UniCheck account which can be used for any legal purpose. The other $2,000 will be deposited in each citizen’s UniLife account. Funds in this account will be accumulated until the citizen graduates from high school and reaches the age of 18.

Each citizen will also have a UniSave account through which citizens can buy certificates of deposit which will pay a guaranteed interest rate.

The UniLife funds can be spent for any legal purpose that is good for the citizen and also good for the nation. This includes, but is not limited to, building or buying a home, starting a business, starting a family, getting married, going to college, and the like.

Starting in the seventh grade, and officially updated at least annually, each citizen will make a financial plan to show how she plans to spend her UniLife funds, and the actual expenditure of those funds must be consistent with the citizen’s financial plan, and must also contribute to building a comfortable, secure retirement.

When Faction-Free Democracy is first implemented, all loans will be transferred to interest-free loans at the Uni. College loan debts will either be forgiven or paid off. Past due house payments and housing rent payments will be moved to the end of the loan with no interest or penalty.

In general, the financial system of the Uni will be designed to keep people out of debt and current on all payments such as credit card, utility, and car payments. If a citizen is trying to stay current, the Uni will keep him from going under.

The Uni will make generous loans to businesses, new and old, that can show how the money will be used to provide a product or service that is good for the nation and will provide well-paid, long-lasting jobs. A portion of employee salaries can be credited as payments against the loans.

We the people intend to inhabit the United States for thousands, hopefully millions, of generations, and our new system of democrato-capitalism is the economic system that will make it possible for us to survive and thrive. Our current system of tyranno-capitalism is a wasteful, selfish system that ravages our people and our national resources for the short-term benefit of a few. Democrato-capitalism will conserve our resources so that over the long-term they will be available as needed. Money is a natural, national resource and we will distribute it to the people just as we will distribute water. This means that we will give each individual a job and a basic amount of money to serve her basic needs. When problems arise, either human-made or natural, our economic system will be adjusted to protect the people and, to the extent possible, enable them to live useful, productive, normal lives. No more depressions, no more grand larceny perpetrated by tyranni in positions of economic power. Our economy will work for the common good and it will transform our lives.

All American citizens are, and of right ought to be, entitled to equal access to rights, resources, opportunities, and protections, so that they can go as far as their talents and efforts can take them, and they can build long lives worth living for themselves and their loved ones. Our unlimited supply of money will make these things possible.

[i] George Washington, Farewell Address, 1796

 

[ii] George Washington, Farewell Address, 1796

 

 

 

[i] Alexander Hamilton, Federalist 1

[ii] James Madison, Federalist 10

[iii] George Washington, Farewell Address, 1796

[iv] The following definitions are taken from Webster’s Third International Dictionary

[i] James Madison, Federalist 10

 

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Cover Draft

This the most recent draft version of my book: Faction-Free Democracy.

36353772_Cover Proof.3514847

 

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Seven Superior Ideas of Athenian Democracy

For more than 150 years, historians have understood that Athenian democracy was a success. For example, the Encyclopedia Britannica wrote a brief summary about the Athenian people and their government. It began with a recitation of the criticisms that some scholars have leveled at the Athenians—demagogues sometimes misled them, they were often intolerant, they put Socrates to death because of his teachings, women did not have political rights, and they kept slaves. There were definitely things to criticize in ancient Athens. But the Britannica article closed with these remarks:

But to say all this [to list the criticisms] is only to say that the city could not entirely shake off the traditions of its past. Its achievement was the more remarkable for that. Seldom since has civilized humanity equaled democratic Athens, and until the last the city was satisfactorily governed by law and by popular [democratic] decision. It owed its fall less to any flaw than to the overwhelming force that was mounted against it.[i]

When I have informally praised Athenian democracy to others over the years, the most common, often angry, reactions are that the Athenians kept slaves and they treated women as second-class citizens. Both charges are true, but they were also true about us in 1776, and for decades after. In fact, we still treat the seven hated groups as second class citizens, and we are headed toward debt-slavery. So, I say to those who are so quick to angrily denounce the ancient Athenians—please aim your anger at the unfairness that is constantly at work in modern America and help to transform our nation into a real democracy.

Melissa Lane is a professor of politics at Princeton. In her recently published book: The Birth of Politics: Eight Greek and Roman Political Ideas and Why They Matter, she had this to say about Athenian democracy:

Greek democracy was something new under the sun—but not in the sense that a role for the common people in government, even in the form of an assembly, was not unknown in Greece or in the wider world up to the 5th century BCE; forms of assembly and consultation are widely attested in Greek history and in surrounding societies with which they interacted. What was new in 5th century Athens was that ordinary people, including the poorest of citizens, came to control (and not merely be consulted by) the powers of government. They did so by deciding policy in the assembly; by judging disputes among citizens in the courts; and scrutinizing (in the assembly, council and courts) the doings of officials, many of whom themselves were selected by lottery or election among a wide swathe of the public. Putting these functions together, the ‘people’—the demos—exercised a plenipotentiary ‘power’ (kratos), which explains the new coinage of the word demokratia, appearing first in relation to Athens, and then being claimed as a name for dozens of polities dotted across the Mediterranean and the Greek mainland that adopted similar regimes.[ii]

Democracy originated in ancient Athens, and it worked.

Donald Kagan, a professor of history at Yale University, published an excellent book about the golden age of Athenian democracy: Pericles of Athens and the Birth of Democracy. In it he discusses the history of Athens and how some historians and politicians have viewed Athenian democracy over the millennia. He even mentions the disparagement of Athenian democracy as expressed by Hamilton and Madison in their Federalist essays. He noted that Madison “echoed” Plato’s dislike of democracy. Kagan then asserted that Plato, Madison, and Hamilton were wrong in their belief that the poor would take advantage of the rich. He said:

The facts about Periclean Athens, as we have seen, were very different. Plato’s assault on its character is a travesty. The Athenian people did not permit their leaders to usurp power. They were not slow to remove and punish even the most powerful men in their democracy, as Pericles learned to his sorrow, and they withstood external as well as internal threats to their democracy. Through the horrors of almost three decades of the Peloponnesian War, military defeat, foreign occupation, and an oligarchic coup d’état, the people of Athens showed that combination of commitment and restraint that is necessary for the survival of popular [democratic] government and life in a decent society.

This restraint is all the more remarkable when we consider how simple it would have been for the Athenian majority to plunder the rich and take revenge upon their enemies. Plainly they had embraced the democratic vision, and their experience had proven its validity.[iii]

Kagan had this to say about those who disparage democracy:

Ancient and modern critics of democracy have shared a basic attitude. Both have distrusted the ordinary person and overridden his autonomy in search of a higher goal: a utopian idea of justice. For Plato, that meant government by a small group of philosophers who would rule in the light of a divine, unchanging knowledge.[iv]

Kagan named Plato, Mao, Lenin, Marx, and Castro as examples of those who thought that nations should be ruled by a small, elite group. I think it is fair to include Madison, Hamilton, Jay, and some of the other Framers. After all, Madison’s “scheme of representation” is the basis upon which the myth of American democracy is built, and it, according to him, consists of a government that is ruled by a small group of representatives elected by those eligible to vote. At the time Madison designed our system those eligible to vote made up a minority of our population. Therefore, from the beginning, our government was designed to be controlled by a small group who would rule without regard to the wishes of the majority. In ancient Athens, democracy was government by the many. In America we have government by a wealthy few. We have a plutocracy.

Paul Woodruff, a professor at the University of Texas, wrote First Democracy, The Challenge of An Ancient Idea. He reviewed the key aspects of Athenian democracy, and in the afterword he asked, “Are Americans Ready for Democracy?” He defined the word “ready” as “having a culture that can respond to the demands that democracy makes.” He said:

To be ready for democracy, a nation must be willing to invite everyone to join in the government, it must respect the rule of law strongly enough to keep a majority from tyrannizing over a minority, it must be mature enough to accept changes that come from the people, and it must be willing to pay the price of paideia—of education for thoughtful citizenship.[v]

His full answer to this important question was lengthy, thoughtful, and enlightening. He provided a sharp focus on how we can move forward—if we want to. In another place he talked about the Framers, especially James Madison, and how they misunderstood Athenian democracy. He said:

They feared a system that gave power to poor people, and they hoped that the representative system they proposed would put power into the hands of those best equipped to use it.[vi]

He closed his book by answering the question, “Do the ancient Greeks have anything to teach us?” Part of his answer was this:

Yes. They had the right ideas, and we must take those ideas seriously if we are to stop the slide away from democracy. Also, some of the ways they put their ideas into practice are superior to our own. In particular, we need to appreciate the way they used representative bodies, chosen like juries, to bring citizen wisdom to bear on hard decisions.[vii]

Obviously, I could not agree more. We will take their ideas seriously. In the rest of this book I will show how we can apply the superior ideas of the ancient Greeks to our new system of government.

Paul Cartledge,[viii] a noted scholar on democracy, has just published a new book: Democracy, A Life. In it, he reviews the history of democracy and he focuses some attention on our system. He made this general observation:

There is no direct institutional legacy of Athenian or any other ancient direct democracy to any modern form of democracy.[ix]

He said that Thomas Jefferson was a “learned classicist,” who was the “chief author of the Declaration of Independence.” But, he added that Jefferson, “like almost all the Founding Fathers, had little time for ancient Greek-style direct democracy.”[x]

In the early part of his book, he told us that he would refer to the democracies of the ancient Greeks, particularly that of Athens, as “direct democracy.” This was necessary because we moderns deeply believe that our democracy, our representative democracy, is just plain “democracy.” We moderns have long described Athenian democracy as “direct democracy” in order to separate it from our American democracy, which we believe is the only democracy that can work in modern times. But Cartledge clearly says that our government is not a democracy. And he said this about some of the Framers:[xi]

Among the leading ideologues of the American Revolution were the three authors of the Federalist Papers: James Madison, Alexander Hamilton, and John Jay. Madison’s Federalist 10, following on Hamilton’s no. 9, delivered a broadside against what he was pleased to deride as “faction.” Adopting an almost early Byzantine notion of ancient Greek direct democracy as “riot” and mob rule by the ignorant and fickle over their betters, and employing a classically Roman rhetorical trope, Madison opined that even “had every Athenian citizen been a Socrates, every Athenian assembly would still have been a mob.” The practical inference for him, so far as the future of American governance was considered, was that “the people in their collective capacity,” must be rigorously excluded from any active or direct share in it. Popular sovereignty might have lip service paid to it, as a theoretical abstraction, but it should go no further than that toward practical realization.

Cartledge is right. The Framers were afraid of democracy and they took the opportunity to libel the democracy of ancient Athens in the Federalist essays. He opens his Epilogue with this observation:[xii]

I conclude this exploratory foray into the life of democracy with a brief consideration of the prospects for real-world democracy, in whatever sense. I do so from the viewpoint of the relevance of ancient democracy and democratic politics to modern, and on the disabused, get-real understanding that “politics is the business of how we decide as a society what our priorities are and then set about to achieve them.” There are many unanswered, possibly unanswerable questions here, but it is also such a vital topic for our age. We live under this system, democracy, even though paradoxically those who founded it in the late eighteenth and early nineteenth centuries were adamant that it was not a democracy in any ancient sense and were just as adamant that—happily—it kept the masses from exercising direct influence on it, and indeed that was precisely why it should be preferred. This paradox is or should be a serious problem for us moderns.

The idea, and the reality, of democracy was created by the people of ancient Athens. So, if our government is not a democracy, then what is it? Or, to put the question another way:

So how did a term like “democracy,” which originally meant “people power,” come to be equated with passive acquiescence in a corporate-funded campaign system that funnels wealth upwards and relegates the vast majority of citizens to the role of yes-men, or, as Aristotle would have said, a condition little better than slavery?

The preceding quote is from the beginning of Chapter 7, “How Did Things Get to Be this Way? The Roman Republican System and the Founding Fathers of America,” in Roslyn Fuller’s excellent new book, Beasts and Gods: How Democracy Changed Its Meaning and Lost Its Purpose.

In this chapter Fuller shows how the Framers had no intention of implementing a real democracy. They had no intention of ever giving power to the people. Instead they favored the model of ancient Rome. Under her chapter sub-heading “Roman Politics: déjà vu,” Fuller says:

Unlike Athenian Democracy, the Roman political system is easy to understand, precisely because it mirrors our own so closely.

In a real democracy the people decide among themselves what they want their government to do, and then they order their representatives to do it. The people exercise transformative and administrative power. But in a republic, in our republic, the people delegate their transformative and administrative power to their representatives and their representatives use it as they please, with little or no regard for the wishes of the people, and with little or no regard for the harm they do.

The Athenians had to deal with the same issues that we do. They needed to make laws, enforce them, and change them. They had to take care of public utilities, defend the nation, manage food supplies, oversee markets, mint money, try criminals, settle civil disputes, enforce contracts, manage foreign affairs, deal with religion, educate their children, impose and collect taxes, and all the rest.

Another modern-day historian, Moses Finley (1912-1986), observed that ancient historians evaluated the leaders of Athenian democracy in terms of whether they served the common good or their own selfish interests. Sounds familiar doesn’t it? He said that these ancient historians agreed that there were three “propositions” that existed in the ancient nation:

The first is that men are unequal, both in their moral worth and capability and in their social and economic status. The second is that any community tends to divide into factions, the most fundamental of which are the rich and well-born on one side, the poor on the other, each with its own qualities, potentialities, and interests. The third proposition is that the well-ordered and well-run state is one which overrides faction and serves as an instrument for the good life.[xiii]

Finley also said that, to the Athenians, “Faction is the greatest evil and the most common danger.” He said that the ancient writers used the Greek word “stasis” to describe such groups. He wrote (emphasis added):

I believe, that there must be deep significance in the fact that a word which has the original sense of “station” or “position,” and which, in abstract logic, could have an equally neutral sense when used in a political context, in practice does nothing of the kind, but immediately takes on the nastiest overtones. A political position, a partisan position-that is the inescapable implication-is a bad thing, leading to sedition, civil war, and the disruption of the social fabric. And this same tendency is repeated throughout the language.[xiv]

So, two different groups of human beings, the Framers and the Athenians, separated by thousands of years and thousands of miles, with different cultures, histories, and languages, with different natural resources and topographies, with different technologies, with different economies, and embedded in two vastly different ages of history, but with identical varieties of human nature, were trying to do the same thing—they were trying to establish a faction-free government. The leaders of these two groups, in their capacity as system analysts, defined the problem of faction in almost identical terms, and they both regarded it as the greatest danger their nations could face.

I agree with Finley—there is a “deep significance” in the ancients’ identification of faction as a key problem that must be solved. And there is another “deep significance” in the solutions that have been tried. The Athenians tried a genuine democracy and we have tried a Madisonian Republic. Their solution worked for the common good, and ours does not. Finley summarized the principles followed by the Athenians as they developed and managed their democracy. These principles are directly applicable to our present predicament. In order to more easily comment on his points I have isolated and slightly paraphrased them below:

  • A political position, a partisan position is a bad thing, leading to sedition, civil war, and the disruption of the social fabric—no argument here. Factions and partisanship lead to very bad things. During the administration of John Adams, the Alien and Sedition Acts were passed, which was a mistake, but nevertheless was clear evidence of the bitter, partisan, factious rancor of the time. And our Civil War was directly due to the faction of white supremacy that controlled the tyranno-South.
  • Men are unequal, both in their moral worth and capability and in their social and economic status—no argument here. But many Americans seem to be unable to reconcile this idea with “all men are created equal.” Madison definitely thought that such inequality among men required that there be similar inequality in their political rights. I will deal with this confusion later.
  • Any community tends to divide into factions, the most fundamental of which are the rich and well-born on one side, the poor on the other, each with its own qualities, potentialities, and interests—the only thing I can add is that these unique “qualities, potentialities, and interests,” when fairly heard and considered, can make us stronger. Not every idea that may emerge from these groups will be factious. High intelligence, good ideas, moral conduct, fairness, and hard work are found in all parts of our society. However, Madison believed that such excellent attributes were rarely found in the lower classes, if found there at all.
  • The well-ordered and well-run state is one which overrides faction and serves as an instrument for the good life—overriding faction is exactly what the Framers said they wanted to do. We need to find a way for all Americans to define “the good life.” And then we need to build it.
  • The state must stand outside class or other factional interests—how can anyone honestly disagree with this? Even the Framers agreed with this point, but they designed their system to assume that factions come from the lower classes, or from a “mob” as in the case of ancient Athens. Our government still operates on this bias against the seven hated groups.
  • The aims and objectives of the state are moral, timeless, and universal, and they can be achieved-more correctly, approached or approximated-only by education, moral conduct (especially on the part of those in authority), morally correct legislation, and the choice of the right governors—there is no argument here, morality, especially the common good, is a stranger to those who hold authority in our Madisonian Republic. But for us today, the next step is to modify our current system so that all of these tools (education, morality, legislation, and governance) can be effectively used for the common good.
  • The existence of classes and interests as an empirical fact is, of course, not denied. But political goals cannot be linked to these classes and interests, and the good of the state can be advanced only by ignoring (if not suppressing) private interests—the Framers surely understood these ideas, but they just couldn’t help themselves. They just had to protect the wealthy class, and there is our problem. By trying to protect the wealthy from the poor, the Framers irrationally created an opening that tyranni have used to seize control of our government.

The Athenians organized their government to deal with all of the elements above: factions, equality, inequality, class interests, personal interests, education, legislation, leadership, justice, security, morality, human nature, and the common good. This process evolved over many years, and ultimately far surpassed ours at controlling the adverse effects of factions. There is a reason for the success of Athenian democracy. Actually, there are seven of them:

  1. Power Management—the Athenians understood that there are two kinds of government power: administrative and transformative. They understood that administrative power can be delegated but transformative power cannot, except in very limited, tightly-controlled cases. Unfortunately, we foolishly mismanage our power. We delegate too much—to too few people—for far too long a time. And we delegate our power through the corrupt system of parties and partisan elections.
  2. Government of, by, and for the people—the Athenian government was of the people, by the people, and for the people. Our government is of the people, by the plutocrats, and for the plutocrats.
  3. Liturgies and Public Works—the Athenians had ways to persuade the wealthy to willingly spend their wealth for the common good. We don’t even ask the wealthy to pay their fair share of taxes.
  4. The Oath of the Ephebes—the Athenians taught their youth that they had a duty to act on behalf of the common good—we should do the same. And we should give them a way to do it.
  5. Evolution by Cogitation—the Athenians formalized this process for managing the evolution of civilization. It relies on the sustained, cooperative, rational acts of humankind. It depends especially on the most important of our intellectual gifts: the power to make something out of nothing but an idea. We will think our way forward. We will use our intellects together. We will ponder important matters with purpose and objectivity. Unfortunately, many powerful factions within our GREEB institutions have largely ignored this form of evolution. They reject knowledge, science, rationality, inclusion, and progress in favor of ideology, prejudice, willful ignorance, exclusion, and irrationality as the tools of governance. And, unfortunately, they have enough power to do great harm to our civilization—they could even destroy it.
  6. The Silver Mines of Laurium—the Athenians knew how to manage their money supply.  We don’t know how to manage ours—but, if we apply our intellects in rational ways, we will quickly learn.
  7. Investing in the People—the Athenians thought it was so important for the people to participate in their democracy that they compensated the poor for the income lost when they attended the Assembly. Without this payment they would have been unable to participate.

 

[i]Encyclopedia Britannica, Macropedia, Government, Forms of, Vol. 20, p. 190

 

[ii] Melissa Lane, The Birth of Politics: Eight Greek and Roman Political Ideas and Why They Matter, p95, Location 1175, Kindle Edition.

 

[iii] Donald Kagan, Pericles of Athens and the Birth of Democracy pp. 269-270

 

[iv] Donald Kagan, Pericles of Athens and the Birth of Democracy p. 272

 

[v] Paul Woodruff, First Democracy, The Challenge Of An Ancient Idea, p. 211

 

[vi] Paul Woodruff, First Democracy, The Challenge Of An Ancient Idea, p. 234

 

[vii] Paul Woodruff, First Democracy, The Challenge Of An Ancient Idea, p. 230

 

[viii] Paul Cartledge is the inaugural A.G. Leventis Professor of Greek Culture in the Faculty of Classics at the University of Cambridge, and a Fellow of Clare College. He is also Hellenic Parliament Global Distinguished Professor in the History and Theory of Democracy at New York University. He has written and edited over 20 books, many of which have been translated into foreign languages. He is an honorary citizen of modern Sparta and holds the Gold Cross of the Order of Honor awarded by the President of Greece.

 

[ix] Paul Cartledge. Democracy, A Life: Kindle location 5280

 

[x] Paul Cartledge. Democracy, A Life: Kindle location 5079

 

[xi] Paul Cartledge. Democracy, A Life: Kindle location 5090

 

[xii] Paul Cartledge. Democracy, A Life: Kindle location 5258

 

[xiii] M. I. Finley. Democracy Ancient and Modern: Revised Edition (p. 43). Kindle Edition.

 

[xiv] M. I. Finley. Democracy Ancient and Modern: Revised Edition (p. 44). Kindle Edition.

 

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An Unlimited Supply of Money

Alexander Hamilton’s definition of money (p. 299) is correct as far as it goes. What he omitted, and may not have known, is that money is a natural, national resource much like water.  Throughout history, civilized society has worked to improve the water supply and distribute it directly to the people so that they may use it to nourish themselves and their families, and to businesses and other institutions so that they can use it for the permanent and aggregate interests of the community. Money should be managed in the same way. So, let’s adapt Hamilton’s definition of money—let’s bring it into the 21st century:

In any large human society money can correctly be considered as an inexhaustible natural resource that is essential for the welfare of all human beings—from individuals, to families, to communities, to nations, to entire civilizations—by means of which they can sustain their lives, and carry out their most essential function: to build a community, and help to build a world, in which all persons can live long lives that are worth living. Therefore, a regular and adequate supply of money should be distributed directly to all citizens to be used for any appropriate purpose, at the appropriate time, in the appropriate way, in the appropriate place, and in the appropriate amount.

Money, like water, sustains our lives and our society, and, like water, it should flow directly into every American household. Our new system of democrato-capitalism, along with our new Faction-Free Democracy, will enable us to make certain that it does.

A Regular and Adequate Supply

All spending will originate with our national government. Our money supply has no limit. It is infinite. We just need a system to distribute and manage it. Money will be supplied directly to individual citizens, to public and private enterprises, and to government entities at all levels. This money will be spent on worthwhile, non-inflationary projects that will make families, businesses, and society stronger.

Each year, from birth to death, we will distribute $36,000 to each citizen. The money will be deposited in twelve monthly installments of $3,000 in each citizen’s free accounts at the Universal Bank of the United States (Uni). Two thousand dollars will go into the citizen’s UniCheck account and one thousand dollars will go into the citizen’s UniLife account. Money from the UniCheck account can be used for any legal purpose, including discretionary deposits in the UniSave account which will earn a guaranteed rate of interest. The money deposited in the UniLife account will also earn interest.

This $36,000 stipend will be provided by the Social Security Administration and will be called the “Social Security Lifetime Stipend (SSLS).” The SSLS will be tax-free and cannot be used to offset any other income that the citizen is receiving or might receive in the future, no matter its source. Let’s take a look at how the SSLS will directly affect our economy:

 

Table 6[i]
Impact of the SSLS on Average Household Income Distribution
Row (1)

Percent

of

Population

(2)

Households

(000)

(3)

People

(000)

 

(4)

Without

SSLS

($$$)

(5)

With

SSLS

($$$)

(6)

Percent

of

Increase

1 4.8 5,913 15,078 200,000 291,800 46
2 1.9  2,288 5,834 188,957 280,757 48
3 3.4 4,175 10,646 163,130 254,930 56
4 4.7 5,806 14,805 139,084 230,884 66
5 7.7 9,460 24,123 113,772 205,572 81
6 11.9 14,687 37,452 88,800 180,600 103
7 17.6 21,659 55,230 64,264 156,064 143
8 24.0 29,434 75,057 39,503 131,303 232
9 24.0 29,531 75,304 16,261 108,061 565
  All: 122,953 313,530 69,285 158,587 132
  Total Household Income

in Trillions:

8.5T 19.5 129%

 

Table 6, column 5, shows average household income distribution under democrato-capitalism—each household has received the SSLS from the national government, based on the average number of persons residing in it.  Notice that both the richest and the poorest Americans will enjoy increased incomes. Just as the ancient Athenians used their new, rich vein of silver to benefit all of the people, we will use our unlimited supply of money to benefit all Americans. We are faced with many very difficult and dangerous problems and our unlimited supply of money, by itself, will not be enough. We must also have millions of well-trained, well-educated, well-motivated, well-equipped, healthy, strong citizens who will be willing and able to work long and hard, without financial distractions, in order to save us from ourselves. With this in mind, we must underwrite the development of all of our citizens.

As you can see in Table 6, row 9, more than 29 million households, containing nearly a quarter of our population, will have an average annual income of $108,061. The lowest two groups, rows 8 and 9, represent more than 58 million households that encompass nearly half of our population, and they have a combined average income of $119,682. The average number of people living in each of those 58 million households is 2.55 which means that the average per capita income of more than 150 million people in those low-income households is $46,927. Just place yourself in the position of earning nearly $47,000 per year versus the current $11,000 per year.[ii] There is real hope that you will have the chance to go to college and to enjoy the many wonderful things that our technologies provide—there is real hope that your lot in life will improve—a lack of money will no longer be the determining factor in your life. You will be able to go as far as your talents and efforts can take you.

Under the SSLS program alone, total household income will increase by $11 trillion—more than doubling that of the current system. As you can see, the average household income will increase substantially at all levels. Everyone will benefit. The households at the highest level will go from $200,000 to $291,800 annually for an increase of 46%. Even at that high income level the SSLS will have a strong, positive effect. The lowest level of household income will rise from $16,261 to $108,061 for an increase of 565%. Money will flow like water into all American households, and poverty will be washed away.

Imagine what it will mean for every mother and father to have an additional $36,000 per child per year to spend and invest for their welfare. Imagine what it will mean for society to have generation after generation of Americans who are raised under this system. Imagine what it will mean for the grandparents—they will be happy to see that the financial prospects for their descendants will be significantly improved, and they will be happy to see that their own chances for a secure and comfortable retirement will be improved as well. Imagine what it will mean for the children. Imagine what it will mean for you. This will be the best investment America will ever make. Americans will finally be able to live the American Way. For example, let’s take a closer look at the impact the SSLS can have on the lives of an American family.

A Family of Three

In my home state of Texas the hourly minimum wage is $7.25. In a family of three with one small, school-age child and two adults who are working full-time at minimum wage jobs, the gross family income is $29,000—which translates to a family per capita income of $9,667. This situation is true for millions of families across the country and it is a shame.  But with the implementation of the SSLS, this family’s financial situation will improve dramatically. Each member of the family will receive $36,000 per year for an annual total of $108,000. Total family income will jump to $137,000 per year, which is less than one of our national congressmen is paid—but any American family, particularly one with a small child, is unquestionably as worthy an investment for America as any member of Congress under our present system.

The SSLS will bring on many positive changes. Business enterprises will enjoy a surge in activity that they never thought possible. With household income more than doubling, demand will also increase dramatically. But this new demand will be more demanding. Customers will demand fair treatment, good merchandise, and competitive prices. For the first time in history the marketplace will be dominated by consumers. They will have the money to buy what they want, when they want, where they want, and at the price they want. The demand for the number of goods will increase considerably, but the main demand will be for better goods and services. In other words the retail merchant will see that the number of sales tickets and the number of line items on each ticket will increase slightly, but the dollar amount of each ticket will noticeably increase as consumers buy better quality merchandise. Income will increase, and the merchant will be able to pay a livable wage.

But for the American family things will improve on other fronts, not just in the purchase of consumer goods. Families of all sizes and situations will have more money to spend on their children and on the adults as well. Families in which both parents now work at minimum wage jobs will be able to keep one parent at home should they choose to do so—if they want more and better child care, the market no doubt will respond to the demand. Diet will improve, interest in life will improve, and school participation will improve. It will be easy to see and measure. Domestic tranquility will improve. Children and adults alike will be ready, willing, and able to respond when called to serve in some government function. Our citizens will have the time and the money to focus on important societal questions as they serve their turn in running our new Faction-Free Democracy.

Technically, the SSLS process is not unusual or even difficult. We now issue checks and deposits directly to companies who provide goods and services to the government. We issue Social Security checks and deposits directly to the people—millions of them every month. In fact, in 2008, President George W. Bush made a half-hearted, feeble, inadequate attempt to stimulate the economy by issuing approximately $120 billion in checks and direct deposits to Americans who filed tax returns.[iii] The people received the money, they spent or saved it as they wished, and the world did not end—nor did it get better. This direct approach is easy to understand and easy to execute, and we will rely on it to manage the SSLS. Every citizen will receive the SSLS, even people we don’t like, even people who don’t deserve it. As my father might say (with a smile), “Only you and I deserve the SSLS, and I am beginning to have my doubts about you.” So, to be fair—to be democratic—the SSLS is for everyone. We are all in it, all the way.

 The Livable Wage and the LWS

By implementing the livable wage, democrato-capitalism will do much to put money into the hands of many American citizens. Our current economic system is built on the tyranno-claim that we have a limited supply of money. This gross, unsupportable, malicious con leads to a pernicious assumption: that wages must be kept low so that profits can be maximized and businesses can continue to operate. But this assumption, based on a lie, is wrong: morally and pragmatically. If a business enterprise does not have enough income to pay its workers a wage that will enable them to build a long life worth living then the enterprise is a BINO—a business in name only. In fact, many of them should be described as a sweatshop: a shop or factory in which employees work long hours at low wages under poor conditions.

We have many thousands, maybe millions, of such BINOs—such sweatshops. Our tyranno-capitalist system subsidizes these sweatshops by lowering the wages of the workers. Such businesses are so poorly positioned, designed, and managed that all they can do is exploit their workers. The owners of small BINOs are trapped—they begin with the idea that their businesses will be successful and they, along with their employees, will enjoy good incomes. But most of them soon realize that their dreams will never come true. Some go out of business. Others hang on, but actually all they have is a poorly-paid job and often a large debt to go along with it—and that debt demands interest payments to the lender. Without meaning to, these small enterprises become sweatshops. Those who depend on these small BINOs have little hope for higher incomes.

The largest BINOs are freeloaders—they embrace the sweatshop model, and they do great harm to America—they practice pure tyranno-capitalism. Walmart is one of the largest such freeloaders.[iv] Table 4 is clear, the greatest problem facing our economy is that more than half our people do not have enough money to participate in the American Way. Our current economic system is not trying to correct this problem, it is actually the cause of it.

The plutocrats in the GREEB institutions accept the current economic system as if it were a law of nature. But it is really an artifact, a creation of men—tyranni, actually. Under democrato-capitalism profits will be secondary. Businesses will primarily be valued in terms of the jobs they create, the wages and dividends they pay, and their efficiency of resource usage. Our lives will be transformed for the better. Under democrato-capitalism a worker will be paid a livable wage. A business that is unable to pay its workers a livable wage is in need of government help. In such cases the government will add a Livable Wage Supplement (LWS) to employee paychecks through the UniPayroll system. In exchange for that LWS the government will accumulate equity in the business. The owner of the business will hopefully recognize that he should get to work to grow his business so that he can pay the entire livable wage himself and thereby maintain his equity. As the owner begins to pay the entire livable wage, his debt will be reduced by each LWS that the government does not have to pay. He will be able to regain his equity position. Should he fail, his business will ultimately become the property of the people, to be reorganized and restarted if possible. But the tyranno-capitalists should have no fear because under democrato-capitalism they, and their former employees, will receive $36,000 annually, and they will also be able to find a job that pays a livable wage.

If we consider the family of three that I mentioned above, we can see that the parents would still be able to work at their same jobs and they will be paid their combined minimum wage of $29,000. In addition they will be paid the livable wage supplement (LWS), which will increase their income by $31,000, which will enable them to bring home a combined income of $60,000 per year. After we add in the SSLS for each family member the total family income would be $168,000.

The following table illustrates the deposits that will be made in each family member’s accounts. On an annual basis $14,500 from work base pay and $15,500 from the livable wage supplement (LWS) will be deposited in each adult’s UniCheck account.  In addition, $24,000 from the SSLS will be deposited in each family member’s UniCheck account. And $12,000 from the SSLS will be deposited in each family member’s UniLife account.

 

Table 7
Annual Income From All Sources

Deposited in UniCheck and UniLife Accounts

Source Account Parent 1 Parent 2 Child Total
Base Pay UniCheck 14,500 14,500 0 29,000
LWS UniCheck 15,500 15,500 0 31,000
SSLS UniCheck 24,000 24,000 24,000 72,000
SSLS UniLife 12,000 12,000 12,000 36,000
  Total 66,000 66,000 36,000 168,000

The money in the parents’ UniCheck accounts can be used for any legal purpose. However, the money in the child’s UniCheck account must be used for expenses that go to meet the needs of the child—including sharing in housing costs, utilities, residence maintenance, transportation maintenance, insurance, and the like. The family can, if it wishes, use UniCheck money to purchase certificates of deposit which will be deposited in the UniSave account where they will earn interest.

The parents may wish to change their arrangement and have only one parent work, while the other parent stays home with the child. But if they decide that both should continue to work, they will have enough money to send their child to a good daycare center. Such facilities will spring up under democrato-capitalism because parents will have the money to pay a worthwhile fee for high-quality, professional daycare service. In addition democrato-capitalism, through the Uni, will make it possible to establish child-care facilities with funding and assistance to meet whatever standards may be required.

Money in the UniLife account is to be used for specific purposes. It will earn interest, and the rate will be the same for all citizens. The rate will be determined by actuaries, and can be changed as circumstances warrant. If the UniLife funds are untouched until the child completes high school, she will have over $256,000 on deposit. This money can be used to pay for college or other similar training, including living expenses. Educational facilities of many types will be eligible for UniLife funds. Over the five years beyond high school graduation it is very likely that many young people will virtually exhaust their UniLife account as they move toward college graduation—and that would be a very good thing. Parents and their children will know that money will be ready and waiting to fund a college education. Higher education will become a normal part of life, just as high school is today. As life goes on, the UniLife account will replenish and grow, and can be used for other important functions of life: getting advanced degrees or other specialized training, buying a home, starting a family, starting a business, and ultimately providing a secure and comfortable retirement.

 Inequality

I started teaching in a small town just outside Waco, Texas. Like the great majority of Texas school districts, there was little money to go around. My subjects were Texas History, Texas Government, Texas Geography, and Seventh Grade Mathematics. Right away I asked my principal for a map of Texas for my Geography and History classes. The next morning he gave me a roadmap that he had obtained for free at a service station. I used crayons to carefully outline or color the counties, major rivers, and major cities.

Later, I taught math and German at a large Fort Worth high school. Everything was first class. They even built a language laboratory with individual work stations so that we could use the audio-lingual method of teaching. There was a great and obvious disparity in the funding of our children’s education. By 1984, the disparity had grown and lawsuits were being filed and threatened. Governor Mark White appointed Ross Perot to head up a special commission to deal with school funding inequities as well as some other pressing problems that the legislature was unwilling to face. Perot came up with a funding method that took money from the rich districts and gave it to the poor. All hell broke loose. Even in the education of our children, redistribution of wealth is intolerable for many. In addition Perot recommended that no student should participate in extracurricular activities unless he was passing all his classes. Perot’s funding scheme became known as the “Robin Hood” plan and his rule about after-school activities became known as “no pass, no play.” Perot’s funding plan was never fully implemented. The rich districts just wouldn’t accept it, and they held the political power in our state. More litigation followed. Just a few days ago the Texas Supreme Court ruled that even though the school funding system is inadequate, it is nevertheless constitutional. Coincidental with this ruling a high school in McKinney, Texas, announced that it was about to build a new sports stadium that would cost more than $60 million. So, it can’t be news to anyone that rich people get the best of everything and poor people get the leftovers, if they get anything at all. Taken together, these and other disparities are known as “inequality.”

In 2009, two British epidemiologists, Richard Wilkinson and Kate Pickett, published The Spirit Level, Why Greater Equality Makes Societies Stronger. The authors looked at the effects of inequality in many of the most advanced nations, including the United States. They observed that the nations in which individual economic inequality was great there was also inequality in the distribution of health and social problems. They looked at the following categories:

  • Level of trust
  • Mental illness (including drug and alcohol addiction)
  • Life expectancy and infant mortality
  • Obesity
  • Children’s educational performance
  • Teenage births
  • Homicides
  • Imprisonment rates
  • Social mobility

They found that inequality, in all nations, had a significant negative impact on these conditions. They found that America, which had the greatest inequality, also had the highest incidence of adverse effects on these social factors. Our nation was an outlier of all the major advanced nations: more inequality, more negative impact on these social elements. The nations that were closest to us were the UK, Portugal, New Zealand, Greece, Ireland, Australia, and Italy—but we were still far beyond all of these nations in our levels of inequality and social problems. At the other extreme, Japan was the outlier with less inequality and fewer social problems. Not far behind Japan were Finland, Norway, and Sweden, followed by Denmark, Belgium, and the Netherlands. All of these nations had less inequality and fewer social problems than America.

The authors of The Spirit Level, have made the charts from their book available at no charge. They even have a PowerPoint presentation that one can download free of charge. This link will take you there:

https://www.equalitytrust.org.uk/resources/the-spirit-level

After publication of The Spirit Level several independent economists published criticisms of the data and the authors’ interpretations. Other scientists, as well as the authors, published their responses to these criticisms, and, from my analysis of these exchanges, the objections fell away. This exchange of views and analyses is the way that our public discourse should be carried on, but almost never is.

Independent of The Spirit Level, others have looked at the correlation between inequality and social problems, especially crime, and have found that as inequality goes up, crime increases, but as inequality falls, so does the crime rate. It may take an hour or two, but, with a little patience, one can read these studies on the Internet and the conclusion is inescapable: inequality is the cause of most of our social problems.

The authors of The Spirit Level also looked at all fifty American states. They were not able to obtain data about social mobility on a state-by-state basis so that category was omitted from their study. But they found that the states which had the greatest degree of inequality also had the greatest incidence of these problems. The states that had the worst inequality and the most social problems were: Mississippi, Louisiana, and Alabama, followed by Texas, Kentucky, Arkansas, Georgia, Tennessee, West Virginia, Florida, and California. At the other end of the spectrum, the states with less inequality, and fewer social problems, were: New Hampshire, Utah, Alaska, Wisconsin, Vermont, Iowa, and Minnesota. All fifty states generally followed the same rule of thumb: as inequality rises, so do social problems. Homicides increase, and so do all the other problems listed above.

We have already seen the impact that our unlimited supply of money can have on a family of three living in Texas. Let’s take another look and see the effect the SSLS and the LWS would have on inequality. In Texas, the minimum wage is $7.25. A family of three, with one small, school-age child, and two parents who work full-time at minimum wage jobs would have an annual income of $29,000. If we compare this family’s income to that of a middle-class family of three with an annual income of $72,542[v] we find that the income of the family with minimum wage jobs is 40.0% of the income of the family with the higher income. The income gap between these two families is $43,452 which is 150% of the family with minimum wages. I don’t know what you think but, to me, that is a considerable gap. In the years of my youth our family income was very low, but in our small town it was not very much lower than most families there. In effect, we were poor, but so was everyone else. Many of my friends from those days have made this observation, “we were all poor, but we didn’t know it.” In other words we were poor but we did not suffer from the adverse effects of inequality.

Now, let’s take a look at the two families of three after the SSLS and the LWS are put into effect. The minimum wage family would find that its income from wages would come to $60,000, and by adding $36,000 for each member of the family we would find a new total income of $168,000. We would also increase the other family’s income by $108,000 ($36,000 for each family member) for a total family income of $180,542.

The relationship between the total incomes of these two families has changed dramatically. The minimum wage family’s income of $168,000 is 93.1% of the higher-income family, when it was just 40.0% previously. The income gap between these two families is now $12,542 which is 7.4% of the minimum wage family’s income when it was 150% previously.

Imagine what effect the SSLS and the LWS will have on families all across the nation. Neighborhoods generally are occupied by people of fairly similar incomes, so under the SSLS and the LWS their incomes will be relatively the same, but they will be much improved with respect to the cost of living—and the gap between the lower incomes and the higher incomes (expressed as a percentage of the lower income) will be reduced. Inequality can be minimized with the implementation of these two programs of democrato-capitalism. So, when economists and politicians tell us that they are sorry, but our high degree of inequality is a necessary byproduct of the tyranno-capitalist system, don’t believe them. Most of them don’t know any better, and their incomes are high enough that they don’t want to rock the boat. But a considerable portion of these “status quo” jockeys do know better. They are tyranni and they naturally want to rise above everyone else. They use two methods to do it: they work to increase their income while they work to decrease yours. It is time to put a stop to this tragic system.

Please remember, there are other ways that democrato-capitalism will improve the economic status of American citizens: providing free services such as health care, providing jobs, paying interest on savings accounts, eliminating income and property taxes, providing equal pay for equal work, increasing wages as productivity increases and as citizens complete important education programs.

Universal Bank of the United States (Uni)

 The Uni will be the primary system for the distribution of money from all government programs and from employee payrolls as well. Let me repeat, all current government programs, such as Social Security pensions, disability checks, and other financial assistance will continue and if any are not now issuing money they will be changed to do so.

All current commercial/community/retail/consumer banks will merge into the Uni. All other banks that hold FDIC-insured depositor accounts must transfer those accounts to the Uni—and then they will go out of the citizen banking business. The merged banks will stay where they are now, they can keep their current names, they can keep the same staff, but they must adopt Uni policies, and they must convert all of their current and new accounts to the Uni computer system: UniSys. Those of us who already have bank accounts can keep the same numbers and can even use the same checks. By becoming part of the Uni these local banks will become UniBranches and will be able to access the unlimited reserves of the Uni. This means that there will be plenty of money in every location for fulfilling the needs of the people. It means that inter-account processing will be faster and easier to correct when errors occur, as they will in any very large system. It also means that all the people will be treated equally by their bank of choice—banking policies and procedures will be universally uniform.

UniBranches will seem very familiar in many respects. They will offer the banking services that many of us use, such as insured deposits, savings accounts, loans of all the usual types, and electronic banking of the kind that is now becoming more and more common. But they will be less familiar in that they will rely on electronic dollars and cents, coins and currency will disappear, there will be no interest charges on loans, and savings accounts will pay a guaranteed annual interest rate. In addition the Uni will replace the Treasury Department and the Federal Reserve, but will keep the essential functions that those agencies now perform, while it jettisons the rest.

 UniKey

The UniKey is a credit/debit tool as well as a secure identification/login device for the holder to use in making payments and interfacing with the Internet. There will be a service charge added to each financial transaction to cover the costs of processing. The UniKey will be intelligent and will capture data that can be uploaded to the holder’s home computer. The UniKey can function as a credit card does today and existing credit card balances can be transferred from current credit card issuers to the UniKey account. There will be no interest charges on such balances but there will be the usual charge limits. Obviously, current credit card issuers will vanish unless they can find ways to compete by providing valuable services at fair prices to their customers. Even tyranno-capitalists should welcome such a situation because it is a clear example of their beloved market at work. But there is an obvious and important difference—in this new rational market the customer really does have a choice and therefore is on equal footing with the credit card company, something that has rarely happened in America with its long history of monopolies and consumer abuse.

The UniKey will make it possible for us to eliminate coins and currency. Transactions that now rely on currency will no longer be possible. I suppose that this will cause considerable disruption in the business of selling illegal drugs and illegal guns, or hiring undocumented workers. All monetary transactions, buyer and seller, will require the use of UniKeys and all UniKey transactions will be traceable. Attempts to establish black market currencies will then become widespread, but we can easily shut them down. Because our national government is the sole legal issuer of money in our country such black market currencies will be illegal and severe penalties will be imposed on those found guilty of perpetrating such frauds.

UniPay

The SSLS and the livable wage will establish a basic income level for every American. These two features of democrato-capitalism will definitely change our lives, but more is needed. We must spend our money wisely, and we must be protected against those who will try to take advantage of us. We will need to protect each citizen against frauds, bubbles, unemployment, overcharging for goods and services, inadequate insurance, medical misadventures, harassment from businesses, and the like. The best way to do this is to change the way we pay our bills. The overall system for paying most kinds of bills will be part of the Uni. All of us, throughout our lives, will use this universal payments system.

The $36,000 SSLS for each citizen will go a very long way toward satisfying two of the Framers’ goals: “insure domestic tranquility,” and “promote the general welfare.” Increasing each person’s tax-free income will certainly promote the general welfare for most Americans, and this will inspire tranquility. But, and this is a big “but,” there are strings attached to this $36,000. It must be spent for certain things such as housing, utilities, transportation, education, clothing, health care, TV and Internet access, telephone service, food, car insurance, house insurance, life insurance, mortgage and rent payments, and the like. And a substantial part of it must be set aside as interest-earning retirement savings. Surely most Americans will not object to these restrictions. In addition the Social Security pension system will still be in effect. It will be based on payroll earnings only, but payroll deductions will be eliminated for employee and employer. The Uni will make it easy for us all—it will pay all of our routine bills so that we citizens won’t have to worry about them. For most of the basic things of life, UniPay will be the single-payer.

Utility companies will no longer bill the customer, they will bill the Uni. They will send a monthly bill to the UniPay system with the details of each customer’s account. The Uni will immediately pay the grand total to the utility. No longer will utility companies have to worry about collecting past due bills, no longer will they have to turn off the electricity and then turn it back on. No longer will an old man like me freeze to death in a blizzard because the utility company turned off his heat. The Uni will then deduct the proper amount from each customer’s bank account. No longer will we Americans have to worry about utility bills.

UniPay will take funds from each citizen’s UniCheck and UniSave accounts. In the case of a Texas family of two adults who are working at minimum wage jobs and who have two school-age children, there will be four sets of these accounts, and the amounts in each will most likely be different. UniPay will first look at the amount in each UniCheck account and deduct a pro-rata portion of the utility bill from each. The account that has the largest amount of money will pay the largest portion of the bill. Each member of the family will pay his pro rata share of the utility bill. Payments will be made automatically and posted in each family member’s account. If there is not enough money in the UniCheck accounts, UniPay will then look for funds in the UniSave accounts. A similar pro-rata process will be used. If those funds are insufficient then UniPay will enter a pro-rata debit item into each account. As future income is credited to any or all family accounts, UniPay will reduce the debit balance by the amount of the credit.

By automatically extending credit for utility bill payments, UniPay will reduce the disruptions that emanate from job loss, illness, and the like. This automatic extension may keep the family together and improve the odds that they can recover from the kind of problems that we hope will never happen, but which we know can happen. Keeping families together, keeping them in their home, keeping them safe, keeping them in school and at work, and keeping them healthy are some of the most important things that any economic system can and should do. Unfortunately, our current economic system does not do them, and the painful, stressful, expensive, counter-productive consequences are self-evident.

As the single-payer of utility bills, the Uni will have a certain amount of influence. The utility supplier will naturally be willing to cooperate. For example, electric utilities will charge rates that are high enough to maintain their infrastructure. The Uni will willingly pay for these prudent acts, but it will insist that the money be spent on the right tasks. In addition, the Uni will be the source of funding for new methods of generating electricity, and it will closely monitor progress as these methods are put into place. I know that some tyranno-capitalists are shuddering in horror at these words, but all I can say is, “Welcome to the future, y’all.”

 Buying or Renting a Place to Live

Obviously all people, adult and child alike, will benefit from a happy home life. Democrato-capitalism can help make that possible by providing financial services which will enable all of us to have a safe, well-maintained home, no matter its size or grandeur, from a small apartment to a multi-bedroom, multi-bathroom, multi-car-garage mansion of the kind that many people enjoy today.

Mortgages will be easy to get, interest-free, and they will be adjustable in a new way. If the value of a home should fall, then the amount of the mortgage payment will fall accordingly. This means that a homeowner who takes out a 15-year mortgage will be expected to make 180 monthly payments based on the amount of the original mortgage which is in turn based on the original value of the home. Payments can never exceed the original amount but they can be reduced based on falling values. As the home value falls the payments will be adjusted accordingly. If the value rebounds then the payments will also be adjusted upward. Contribution to the homeowner’s equity in the home will reflect the actual dollars paid on the mortgage.

If, for some reason such as loss of income, a homeowner cannot make a payment then the payments will be suspended. Once the homeowner can begin to make payments again, they will pick up where they stopped and there will be no penalty. Mortgage payments still outstanding, if any, will be charged against homeowner equity if the house is sold.

When the Uni makes a mortgage loan it will have certain requirements. The borrower must have adequate resources to repay the loan and to maintain the home. The loan will be interest-free but there will be a monthly charge to be used for home maintenance. The Uni will contract with local cooperatives to do regular repairs and preventive maintenance, and the homeowner will select the company she prefers. The payments will continue even after the mortgage is paid off. As I will explain later, the people have a compelling interest in making sure that all homes are in good repair.

Once a citizen satisfies certain requirements such as age, level of education, experience, and employment, she will be eligible to use the money in her UniLife account to partake of many of life’s good things. She can go to college, she can start a business, she can start a family, she can buy a home, or she can do other things that will help her to build a long life worth living. The process of buying a house will be similar to the one we have today, but there will be a few differences. The qualifying process will be identical—the buyer will have to demonstrate that she has a good credit record, that she has a good income, that her budget will be able to handle her other expenses as well as the cost of the new home, and that she has enough cash on hand for a down payment and other startup costs.

An additional requirement that is not obvious but is very important is that the UniBranch loan officers must be able to see how well the purchase of the house fits into the buyer’s future plans. Her goals, the costs to achieve them, and her timetable for completing them, could conflict with the purchase of a house.

The other differences will be easy to see. If she has to borrow money she will be charged no interest. This will be a huge advantage. Today, if she had to borrow $100,000 at 5.0% interest for 15 years, she would pay back $142,342 over the term of the loan, and her monthly repayment amount would be $790.79 rather than $555.55 on the interest-free mortgage. I know it is hard to believe but interest rates in effect increase the cost of housing by 30% or more depending on the rate and the duration of the loan. Another significant advantage of our new system is that there will be no property taxes or mortgage insurance.

However, there is one difference that at first may seem to be a large added expense. In our new system the buyer of a house must contract with a coop that will maintain the physical structure as well as the surrounding property. We, the people, under democrato-capitalism, will agree to give each of us the SSLS so that each of us may have the resources we need, when we need them, where we need them, and in the amounts we need so that we can take care of ourselves, our families, our communities, and our nation. We are all in it all the way. So, the SSLS does carry with it certain obligations, and one of those is to keep our assets in tip-top shape. Homes are among the most important such assets. Each home owner will be required to contract for maintenance services. The cost of the maintenance contract will be determined by the structural details of the home, the heating, cooling, cooking systems, the building materials, etc. will all go into determining the cost. This determination will be made by the Asset Value Appraisal System (AVA). The AVA will also set the fair market value of the house. Valuations are already made by tax appraisal district entities all across the country. The AVA system will value all housing and other real assets in the country. Under democrato-capitalism all housing and other structures must be properly maintained and the buyer/owner of such properties must pay. This requirement will assure that the value of a property will be maintained at the highest level, and will contribute to the overall asset values of America. One of the criteria we will use to judge our national financial status will be the total value of all assets in the nation, including private and public assets alike. Maintenance coops will be large employers. I will say more about them later.

In the case of rentals, the same general approach will be followed. Any rental charge must include an amount to be set aside for maintenance. The Uni will manage that amount and make certain that repairs are timely and well-done. The owner of the apartment complex will bill the Uni, not the tenant. Any disputes on payments or maintenance will be between the Uni and the apartment owner. The people have a compelling interest in making sure that all apartments are in good repair, and that the tenants get the services they were promised.

Housing Bubbles

One of the most serious defects of our current economic system is that the people have very few investment opportunities. Savings accounts pay very low interest, the stock market is very risky because the price of a stock depends on its future earnings and predicting the future is always impossible to do—and big investors, through powerful computer systems, can manipulate stock prices in ways that take advantage of ordinary citizens. Housing therefore has become the primary remaining investment to increase a citizen’s wealth. It is one thing to own a home and see it increase in value (while mortgage interest is reducing family cash flow), but it is quite another thing, a dangerous thing, to buy a house as a speculative investment. The Wall Street gang expected the 2008 housing crash. They designed the derivatives that ultimately produced the bubble, and they also designed derivatives to take advantage of the crash. This catastrophe was a virulent form of tyranno-capitalism, and it became a well-established tool for unscrupulous market manipulators on a grand scale.

We will put a stop to housing bubbles. A citizen’s UniLife account funds can be used to purchase a residence for the citizen, but they cannot be used for a second home of any kind. If a citizen wants to buy a second home then she must find another way to finance it. When a citizen uses UniLife funds to buy a primary residence, she can borrow interest-free money from the Uni but this act will commit her UniLife funds, even those not yet deposited, to cover the amount borrowed.

If she wants to buy a residence and pay an amount that is in excess of the fair market value set by AVA, she must make up the difference in cash at the time of the purchase, and the source of that cash cannot charge interest, or have any claim on the home. Buying a residence will be a cash-only business. The Uni can, and will, advance the cash needed to buy a residence so long as such a purchase fits into the overall life plans of the buyer. The ultimate goal of the UniLife account is to build a secure, comfortable retirement, and buying and properly maintaining a home is an important part of reaching that goal.

 

Health Care (includes Dental Care)

Right now this system is a hodgepodge of discrete businesses of many types: charities, for-profits, independent providers of professional services, institutions that provide professional training, and several overlapping government programs that are used as political footballs by the members of our national and state governments. The deeper one digs into this morass of writhing, nonsensical regulations and tyranno-motives, the more appalling it becomes. Many years ago, I was a member of a small team of systems engineers who designed and developed one of the first Medicare systems, which became the most widely used such system in the country. I then helped develop one of the first Medicaid systems, and it too was widely used. During that period I naively saw a future in which government would provide a comprehensive health care payment system that would essentially be Medicare for all. But, as we know, it was not to be. Too much money was sloshing around in the system, and too many tyranni wanted to get their hands on all of it.

For the next thirty years I worked to provide systems and services to a wide range of health care organizations, including Blue Cross-Blue Shield plans, health care insurance companies, association groups, large employers who were self-insured, and HMO’s of several kinds. I saw things grow more complicated and more burdened with silly, wasteful, even stupid regulations. Barriers were thrown up between patient and doctor. It was disgusting, burdensome and distracting to doctors, and ultimately harmful to patients. It will rightly be viewed as one of the most contemptible episodes in our history—how tyranno-politicians and tyranno-capitalists conspired to make profits from sick people. It is time to put an end to it.

We the people, through UniPay, will use our unlimited supply of money to pay for all aspects of the health care system. Training for all medical professionals will be free. All equipment will be paid for by the people—and all building space and supplies as well. No medical practitioner, at any level, will have to take on debt to learn and practice her skills. But, and this is a big “but” for a few, they must practice science. Rationality, not ideology, must prevail. There are two more big buts—they must maintain their skills and they must, as a profession, identify and deal with those whose professional skills are inadequate. Patients must be protected, and medical professionals must be the first line of defense—not only against illness, but against bad practitioners.

Medical practitioners will not have to worry about being sued for malpractice, and they will not have to pay for malpractice insurance. The people, under democrato-capitalism, will assume the expense of caring for and compensating patients who have been injured or otherwise mistreated. But those practitioners who have been guilty of malpractice will be subject to discipline by boards of their peers which can lead to reprimand, suspension, termination of the license to practice, or criminal referral.

Compensation for medical professionals will be established by randomly-selected panels of ordinary citizens and by panels of non-practitioners in the field who will work with representatives of the various professions. Medical professionals should have only one worry: what is best for their patients. They should have the resources and the skills they need to do what is best for their patients. They should be free from money worries, they should be well-paid, even made rich, for the work they do. Money, at least the profit motive, must be removed from the practice of medicine. This includes all kinds of current for-profit enterprises. The people who work in the medical professions will profit, and profit very well, directly from the work they do, not from the investments they make in medical enterprises such as their own private laboratories.

Because the people, under democrato-capitalism, will finance all drug development activity there will be no need for profit. Pumping the stock of a company that has developed a new drug, or pushing off-label uses of drugs, or stopping the manufacture of old, effective drugs in favor of more profitable new drugs that are not more effective are among the most egregious practices of tyranno-capitalism. The scientists and others who develop new, more effective drugs will be handsomely paid by the people, based on their contribution, their level of effort, and the benefit their drugs will bring to the lives of the people.

Each citizen’s UniKey will serve as an identification card which entitles the citizen to health care services. Health care providers will report all such services by means of a national computer system, UniMed. The data reported will serve as part of the compensation formula for providers. Outcomes will also be part of the calculation. These two factors will give rise to many disagreements and will result in several methods of compensation. Providers can choose the method they prefer, and that choice will be made known to patients. For example: Dr. Donna Xenon, M.D., FFS (fee for service), or Dr. Donna Xenon, M.D., SP (salaried practitioner).

All health care expenses will be paid directly by UniPay. Patients will be provided with secure UniMed data that track their health care encounters with all providers.

 UniBranch Compensation

Compensation for UniBranch employees will be based on how much they contribute to the community. Factors such as housing starts, private business starts, employment, jobs, inflation, business income, students finishing high school, students finishing college, and other similar indicators of the community’s overall economic health will determine the compensation of the UniBranch staff.

Operating expenses for the UniBranch will be paid by the Uni. Each branch will submit an annual budget to the Uni which will then supply the funds as they are needed. All UniBranch employees will receive regular paychecks and annual bonuses through UniPayroll.

The goal of the UniBranches is to help their customers build long lives that are worth living, This task requires providing funds to meet the needs of their customers as they pass through the stages of life—and one of the most important parts of this task is to help UniBranch customers develop and follow financial plans for each stage, with the ultimate aim of building a secure, comfortable retirement.

 UniBranch Loan Committee

 The loan officers of a UniBranch will process loan applications and will present those that meet their underwriting criteria to the UniBranch Loan Committee for final approval. Such committees will be chosen from the local community by means of random selection. Training will be made available on the Internet and by the local school system. In some cases, the committee will have to consider the availability of resources before approving a loan. In other cases the committee will have to consider the impact a new venture might have on existing community enterprises. These can be very difficult decisions that can be fraught with conflicts of interest.

In order to guard against special treatment of friends and family, loan filings will also be reviewed by loan committees from UniBranches that are at least 1,000 miles away. These remote committees will be chosen by random selection, and the loan files will be available on the Internet. Loan committee members will serve for one year and will be paid the livable wage for their service.

Cooperatives and Jobs

 Cooperatives will be “not-for-profit” enterprises, they will be large employers, and they can be used in many types of situations: electricity providers, retail stores, manufacturing plants, hospitals, etc. We got electricity when I was thirteen years old. It was wonderful. I was fascinated by the meter, and my job was to check it each month and mail the reading to the cooperative’s office in the next county. Now, sixty-four years later, my electricity is provided by another cooperative. The service is excellent. During the Great Depression, one of FDR’s ideas led to a national program to provide electricity to rural America. What a difference a good idea can make!

Maintenance cooperatives will follow a modified version of Athenian democracy. The citizens who pay for maintenance services will be the members of the cooperative and they will hire management personnel. They will also serve on cooperative boards as needed, and they will be chosen by random selection for duty. The cooperatives will serve four main purposes: to keep the physical structures and grounds of their members in tip top condition, to provide employment for members of the community, to provide training and employment for students who live in the community, and to provide the skills needed to deal with global warming.

This latter service will be to upgrade and modify buildings and grounds to improve efficiency in the use of electricity and water. These two resources are likely to be expensive and in short supply as our world warms. The maintenance cooperatives will provide the services to switch from overuse of water to new landscape plants better suited to hotter, drier conditions. Likewise with the use and generation of electricity. The Uni will pay for the materials, but the owners of each location must pay for the labor.

The costs for the cooperative’s student training mission will be paid for by the Uni. In this way young citizens can be trained in many useful skills while earning a livable wage—this wage is in addition to the SSLS, and will be deposited in the students’ UniCheck accounts. Students will be full-fledged employees of the cooperatives. Vocational agriculture programs in Texas public schools are an excellent example in which students are taught specific skills about real world agriculture, and the cooperatives will teach skills in several other fields. Students will be expected to spend at least eight consecutive weeks of their high school education working for a local maintenance cooperative.

Recognize and Cherish

The veterans who met at our house so many years ago taught me that above all else our government should help those who need help, protect those who need protection, and recognize and cherish those who served and sacrificed. Now that we have an unlimited supply of money, we can answer that call. For example, we can assist veterans and many others who could use help, a little or a lot, in many different ways. We can establish government-funded programs which will provide help from building and modifying homes to make daily life easier, to maintaining houses and the surrounding grounds, to providing special equipment, to providing child care as needed, and everything and anything that can help, protect, recognize, and cherish our fellow citizens. You probably know someone who could use some help. Now you, and we, can give it to them.

 Unions

 All citizens who work for someone else will automatically be members of a union. The money needed for the operation of the union will be supplied by the Uni. A union member does not have to pay to be a member, all memberships are free. A union member who hates unions, or otherwise does not want to participate, does not have to participate. But he will be included in all benefits that unions may provide. In general, unions will act in support of their members and they will have the right to represent their members in dealings with employers. Unions will be able to represent their members when dealing with state labor relations panels. There will be no strikes, but there will be immediate and full support of worker interests. Professionals who wish to form their own union or join professional associations are free to do so just they are today.

 The Wall Street Stock Market

 I am convinced that the stock market is a casino that works against the interests of the people. Just like casinos anywhere, the house wins over the long haul. This means that there are many more losers than winners. But gambling casinos are more honest than the stock exchange because they acknowledge that the odds are in their favor and the odds should be a matter of public record. So the Las Vegas casinos are a form of recreation, but they are not a rational basis for building a secure, comfortable retirement. Neither is the stock exchange. The winners there are either lucky, which does not last long, or they have an unfair advantage, such as insider information or the tools to take advantage of split-second timing. I am convinced that there are far more losers than winners, but unlike Jamie Dimon,[vi] I could be wrong.

We can check out my theory. We have the IRS data that shows the trading activity of citizen taxpayers. It shows the trades, and the gains and losses, on an annual basis. These data can be used to see how many citizens win or lose when making stock trades, and they can show the net dollar gain or loss. I will wager that there are more losing than winning accounts. Once this information is produced, the stock markets will either be vindicated, or they will be revealed for the scam they are. Under democrato-capitalism, we will require stock trades to be reported annually for each citizen. The data will be studied without revealing the citizen’s name, but will be reported, in aggregate, for all to see. After all, professional stock traders agree that reliable, factual information is the most important part of their process.

 

Private Enterprise

 Democrato-capitalism will support private enterprise. One citizen alone, or many citizens together, can invest their UniLife funds to start a business. If they need more capital than they can provide on their own, they can apply for a loan from the Uni. All they have to do is develop a business plan, just as they would do today, and the Uni will respond. The loan will be interest-free, and the collateral will be the assets of the business, held by the Uni in the form of shares of stock, and the future UniLife income of the investors.

Businesses that fail to repay their loans or their livable wage supplements, or that fail for any other reason, will become, temporarily, the property of the people. The AVA will value the business and the Uni will decide whether to sell it, make it a cooperative, or liquidate its assets and close it down. Any money received by the Uni will be deactivated and will thereby reduce the chances of inflation. In order to determine if it would be worthwhile to convert the business to a non-profit cooperative, the Uni will consult with any and all citizens who have an interest and who have an idea for the structure of such a cooperative. If any citizen(s) have an interest in buying the business they can submit their plan to the Uni, and the normal process for granting business loans will be followed.

Neither the Uni nor the government will control the means of production or distribution. The Uni will temporarily take ownership of troubled assets and try to make them viable in some form of private ownership. In spite of what tyranno-capitalists are sure to assert, democrato-capitalism is not socialism, nor is it the enemy of profit. For example, the Uni will encourage the advent of a new kind of corporation that will be aimed at citizens who have good ideas for new businesses. It will be similar to the venture capitalist model. It will be for-profit, and it will distribute dividends to its stockholders.

Today, the government invests billions of dollars in research which leads to new products and new businesses. These research projects are very often engaged in finding cures for diseases such as cancer. Private investors will fund startup companies that are in high-growth fields which have high upside potential. In many cases these venture capitalists will earn eight or more times the amount they invest. The owners of the nascent companies will be charged what amounts to 40% to 60% interest on the money invested by the venture finance companies. But these two systems of finance, while they do bring new growth to our economy, do not do enough. The Uni will invest in companies that will provide long-lasting jobs that pay good wages and performance bonuses to their employees, as well as dividends to their stockholders.

The Uni’s goal is always to improve employment and prosperity. It is designed to put money into the pockets of American citizens. So, any proposal that is likely to become a good employer is one that the Uni will support with interest-free money. The company’s creators, because they will be the largest stockholders, will be able to earn the creator’s payout through dividends and through stock sales. Profits will be used to pay good wages and employee performance bonuses, as well as stockholder dividends. These companies will sell dividend-earning shares to the general public. Because the Uni is the primary investor in these companies, in the beginning and over time as it grows, there will be no need to retain profits. Therefore all profits can be returned to the employees and the shareholders. These special companies will be called “profit-return companies,” or “PRC’s.”

Planning Systems: Distributing Money

One of the most divisive parts of our current system of economics is called, “redistribution.” Some say that this is a process that takes money from those who have it and gives it to those who don’t. The process is normally carried out through taxation, and here is where trouble begins. In Federalist 10, James Madison talked about this eternal problem:

The apportionment of taxes on the various descriptions of property is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice. Every shilling with which they overburden the inferior number, is a shilling saved to their own pockets.

It is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good. Enlightened statesmen will not always be at the helm. Nor, in many cases, can such an adjustment be made at all without taking into view indirect and remote considerations, which will rarely prevail over the immediate interest which one party may find in disregarding the rights of another or the good of the whole.

His observation about taxation was correct. Redistribution creates “clashing interests.” The idea of redistribution generated much anger then and perhaps even more today. It is a very personal thing. Madison had no real solution to it. But we do. We have an unlimited supply of money. This means that there is no redistribution of money in our new system. We will not take money from one American and give it to another. We will be taking money from our unlimited supply of money and giving it to people to serve the common good, as we, the people, define the common good. In the case of the SSLS we will give each citizen the same amount—and all of that money will come from our unlimited supply of money. No citizen’s income will be reduced. The income of each citizen will be increased by the same amount.

Our unlimited supply of money will allow us to provide the resources needed for worthwhile, non-inflationary projects. Human and natural resources—other than money—will be the limiting factors. In order to supply money when, where, and in the amounts needed we must have the ability to forecast those needs. These forecasts are the kind of thing that computers do very well. They can handle vast amounts of data, slice and dice it in many ways, and organize it easily into reports detailing when it will be spent, for what purposes it will be spent, who shall spend it, the time frame over which it will be spent, and more. Such forecasting systems can be extended to define and tabulate the resources needed to support the spending of our money and even report whether those resources will be available when needed. Computers are perfectly suited to take mammoth amounts of low-level data and roll it up into different summarizing levels to make analysis and understanding easier. In other words, if we have the data, computers can enable us to use it to good effect. We already collect an enormous amount of data, and the Uni will be able to collect still more.

In order to build our new systems, and in order to successfully deal with our problems we will need plans—lots and lots of them, at various levels of detail, and covering virtually every aspect of our shared lives. Plans and budgets will be established for individuals, local governments, school districts, state governments and the national government. These entities will apply for money to finance their operational requirements and they will include timelines for when the money will be needed. Groups of citizens will be chosen randomly to serve as Planning Juries to approve these plans.

School children will be offered a personal system to begin to develop their own financial plans for their lives. They will be taught how to use the system and their plans can be updated as they wish. Part of these plans is for the system to show how much money will be required to pay for the things these students want. Savings plans can be demonstrated so that ultimately most children will be taught the wisdom of getting an education and of saving. The individual planning system will be available to all throughout their lives.

The National Planning System (NPS) will bring together all of these financial plans and develop the National Plan for America (NPA) which will show how much money America will need over the next century—including how much will be spent on each project, when and where it will be spent, for what purposes, and what resources will be required to carry out the plans. Our national financial plans at all levels, except individuals and families, will be available for all to see. Because the NPA will include timelines, it will be regularly updated to show progress and changes. This money management process will make sure enough money is available to meet all needs that have been agreed to by society. All that is left is to distribute it.

 Money: Limited? Or Unlimited?

Our current economic system is based on the idea that we have a limited supply of money, and in order to pay for its operating expenses our government must borrow money and pay interest on the money it borrows, or it can tax the current income of the people, or it can lower operating expenses by reducing government services for the people, or it can privatize many government functions, or it can lower the taxes of wealthy citizens and corporations so they can invest their surplus in enterprises that will hire more Americans who will become taxpayers. These bad ideas keep the government, and the people, in perpetual debt.

The truth is that our supply of money is now, and has always been, unlimited. For proof of this fact, and it is a fact, we only have to take a look at our present system of money creation. Most of the money that is in use today has been created by banks, not by the national government, or the Treasury Department, or the Federal Reserve, but by banks. Every time a bank creates a new loan it creates money.

Many years ago, I went to a local bank to borrow money to buy my first new car. I filled out the paperwork and met with a loan officer. He asked a few questions and I told him the details. He asked me to sign another document or two and called the dealership. When he was finished he told me that I could pick up the car that afternoon. The amount of the purchase was $3,000, a substantial part of my income, but I had no other debts and I had three years to repay it. I didn’t know it at the time, but the banker, by creating that new loan, also created $3,000 (plus interest) in new money.

All consumer loans, college loans, mortgages, credit card purchases, and the like create new money. The amount fluctuates depending on a few variables, but much more than 50% of our money supply is created by banks. As the loan is repaid, the money is removed from the money supply. So, by repaying my loan, I reduced the national money supply by that amount. Paying my utilities did not reduce the money supply. When my employer issued my paycheck he did not reduce the money supply. But repaying bank loans did and does reduce our money supply.

So, I ask you, what is to prevent banks from issuing loans for any and everything? What is to prevent them from issuing trillions of dollars of money? Nothing. Nothing at all. If the amount they issue gets so large that it leads to unusual behavior in the economy, or if some report that is filed with the bank regulators contains large numbers where small numbers should be, then some alert bank examiner might leap into action and put a stop to it. But bank examiners are not always that alert, and when they miss the signs havoc will ensue. Surely, this doesn’t happen? Unfortunately, it does. It happens all the time. We all have heard of the “business cycle.” Well, there is a “fraud cycle” as well.

The way that banking was explained to me in 1953 in a high school course called, “General Math,” went like this. People deposit their money in banks. Banks loan out the deposits to people in the community. The borrowers use that money to finance all sorts of good things: cars, appliances, homes, television sets, furniture, swimming pools, clothing, etc. The borrower pays back the loan and the cycle repeats.

The banker was providing a service to the community. He paid for a building and furnishings, hired people to process the bank’s business, and participated in community activities that served the common good. And it was only fair that he should be paid a good return for his service. In my little hometown, I knew the banker. I played golf with him from time to time. He was a good man, and he lived up to the banking model I was taught. His bank created money by making loans to citizens, but he did not abuse the privilege. He managed his loan program prudently. He only loaned money to people who could repay, and the loan was for an amount that was consistent with the actual value of the asset being purchased. The interest was fair and in keeping with rates in surrounding communities—and the collateral was real and sufficient. The model worked time after time, decade after decade.

Unfortunately, the model sometimes fails. We discussed in an earlier chapter how the banking system failed in the Dust Bowl. It failed for the farmer and for the banker. It was a natural catastrophe that neither the banker nor the farmer anticipated, and there was nowhere to turn. Farms failed, banks failed, collateral was devalued, and you know the rest. This failure spurred our national government to implement new procedures to minimize the size of another such catastrophe should it occur.

But there are times when the bankers are crooks. Big crooks. Lots of them. Thieves on a grand, multi-trillion-dollar scale. The most recent banking catastrophe unleashed its damaging effects at the end of the George W. Bush administration, but had its beginnings during the Clinton administration when President Clinton, in collusion with Texas Senator Phil Gramm, authorized the repeal of the Glass-Stegall Act. This act was intended to keep the biggest banks from playing games with the deposits of unsuspecting ordinary citizens. Clinton, who is known as a very smart man, either is not so smart, or he was up to no good. What finally happened is that the big banks saw an opportunity and they exploited it. Local banks, like the one in my hometown, were not part of the theft I am about to describe. Call them community banks; banks that serve the local community.

First, let’s look at a somewhat simplified version of how an honest housing finance system worked when I was young—back in the 1940’s and 1950’s.

  • Builders would borrow money from the local bank to finance the materials, labor, and other costs of building a new home on speculation.
  • In order to qualify for a loan, buyers would need a job that paid them enough so they could afford to repay the loan, including the interest, and pay for all other services needed to keep the house in good condition. They would also need to have enough money on hand to make a down payment on the house.
  • The buyers would contact a real estate agent who would help them determine how much money they could afford to spend on a house. Then the agent and the buyers would start looking at houses in the right price range.
  • The buyers would find a house and apply for a loan. If they qualified, the bank would grant the mortgage.
  • A title insurance company would handle the transfer of ownership from the builder to the buyers with a lien to the bank.
  • The builder would get his money and be able to repay the construction loan to the bank.
  • The real estate agent would receive her commission for selling the house.
  • The title insurance company would get fees for handling the transfer of ownership.
  • The bank would get mortgage payments, interest payments, and origination fees for processing the mortgage.

If the house was well-built, and if the buyers kept their job and made their payments, and if the house was worth the price paid by the buyers, then all was well.

The risks in this series of transactions were obvious and measures were taken all along the way to account for them. The reputation of the builder was taken into account. The location of the home and its construction materials were considered. The buyer’s payment history was taken into account as well as the likelihood that the buyer’s employer would remain in business.

If the buyers lost their job and could not make their payments, then the mortgage would be in default and the bank would foreclose—the builder, the real estate agent, and the title insurance company would all keep their money—the buyers would lose their home and their credit rating would be downgraded—the bank would keep the money it had already collected, but any remaining payments were not going to be collected unless the bank could resell the house.

So, the buyers and the bank were the only ones at risk, and bank was in the driver’s seat—it had the power to grant or deny the mortgage. To protect its position, the bank would check the information supplied by the buyer. The banker had a very powerful incentive to make sure that everything was on the up and up. The bank was the owner of the mortgage, and if it failed the bank would suffer. This system worked very well for decades. It became a pillar of strength supporting our overall economy.

So, how can a devious person break this system? How can he make a lot of money and get out before anyone finds out? How can he take the money and run? If that sounds crooked to you, it should, because it is crooked. But is it illegal? Will the crook go to jail? Maybe, maybe not. This situation is perfect for the tyranno-capitalist, whose credo is, “make money no matter who gets hurt.”

To make an already long story short, the Wall Street banks found a way to screw the American people. They invaded the housing finance system that depended on local banks and other small lenders, institutions that had a stake in the mortgage. Here is how the Wall Street banks changed the system and virtually destroyed it.

  • Builders would still borrow money from the local bank to finance the materials, labor, and other costs of building a new home on speculation.
  • Mortgage processing companies, instead of local banks, would process mortgage applications. They were paid for the number and the sizes of the mortgages they handled. Their incentives were skewed. They were paid for making loans, not for making good loans. So, “liar” loans appeared in which the buyers would lie about their income while the mortgage company looked the other way. If the buyer defaulted on a loan the mortgage company still kept its fees.
  • Builders were paid for their houses and they could pay off the construction loan and keep the profits.
  • Local banks would not touch these loans, but the Wall Street banks would. They bought them by the thousands.
  • Real estate agents still earned commissions for the sales they made, but now they could make more, and larger, loans. Commissions soared. They were safe. If the buyer defaulted, the agents still kept their fees.
  • A title insurance company would handle the transfer of ownership from the builder to the buyers with a lien to the bank. These companies processed more and larger transactions and got more and larger commissions.
  • Wall Street banks were buying home mortgages as fast as they could and a substantial percentage of the loans were bad, and were likely to fail. But we don’t have to worry about the Wall Street banks, they knew exactly what they were doing. They were not fools, but they knew where to find fools who could be duped into paying high dollars for trash.

They pooled bad loans and good loans into packages that they called, “Mortgage Backed Securities” (MBS’s). The Wall Street banks knew they had to dress up the trash they were selling so they paid fees to securities rating firms who, in turn, gave the MBS’s unjustifiably high credit ratings, and then the Wall Street banks sold the whole pile of camouflaged, ready-to-default mortgages to unwary buyers as good investments. They sold them in the billions of dollars. So, the ultimate suckers were the persons and groups, such as state pension funds, who bought those packages containing bad loans. They became the owners of a lot of really bad mortgages—they had put their trust in the financial system, in the government regulators, in the big Wall Street banks, and in the securities rating firms, and they were all cheated. Fraud here, fraud there, fraud, fraud everywhere. Literally thousands of thieves stole billions of dollars. Millions of people lost their jobs, millions lost their homes. And the thieves, the big Wall Street banks, are stronger than ever—our elected representatives in Congress made sure of that.

It took a while for the collapse to start, but eventually the people who had borrowed more than they could repay began to default and the whole thing cratered. And the Wall Street banks, perverted geniuses all, found ways to make money even from this. They started selling insurance policies against the collapse of the packages of bad loans. And, to top it off, the American people had to bail out the Wall Street banks because they had been looted. The profits from the sales of the bad loans had long ago been siphoned off and put into the pockets of the bankers. Nobody went to jail, and the system is still vulnerable to newer, slicker, more dishonest schemes. In Wall Street, the rule of thumb is ancient, “never give a sucker an even break.”

Nobody stopped the banks from issuing new mortgages. There was obviously an unlimited amount of money available. If there had been a limited amount of money, as we are led to believe, then surely some sort of early warning system would have sounded the siren and we would have known that we were in financial danger—our money supply was being devoured.

But, in some situations, some men, usually members of Congress, are always vigilant. They are on guard against giving our precious limited supply of money to the people. They say that unemployment insurance must be shortened because it is too expensive. They say that health care is too expensive so we do not have enough money for national health insurance. They say that we can’t afford free college educations for our children. They say that we can’t afford to give our children good lunches at school. However, they say that we can afford to give the wealthy a tax cut. For example, President Trump proposed a tax cut for the top one-tenth of one percent of our income-earners that would give them, and him, an average tax reduction of $2.3 million. Trump also said that we can’t afford to continue to pay premium subsidies that would enable poor people to buy health insurance—and he is cutting off funding for measuring the effects of global warming, thereby making it more difficult for scientists and other concerned citizens to argue that our government needs to do something to save the planet..

When George W. Bush, for political reasons, wanted to distribute $120 billion directly to the people he simply activated it. It was no big deal—after all we have an unlimited supply of money, and it can easily be distributed by electronic means. When Fed Chairman Ben Bernanke wanted to distribute two trillion dollars directly to the big Wall Street banks, he did not need congressional action, he simply activated it.[vii] But, Bernanke and other high government officials deny that they were giving money to the banks—they insist that they were merely swapping Fed reserves, not money, for treasury bonds or other assets held by the banks. This sweet little swap, according to the Fed, had no effect on the national debt, or on inflation. Let me repeat: according to the Federal Reserve, giving money to the big banks is not inflationary and it does not increase the national debt, but giving money directly to people in need will lead to hyperinflation and increase the national debt. The mind boggles, the nose is overwhelmed with foul odors.

Furthermore, President Obama’s stimulus plan, the American Recovery and Reinvestment Act (ARRA) distributed about $800 billion to a variety of Americans via a variety of methods. Congress authorized the ARRA in 2009 and it helped keep us from falling into a deep depression. The money was distributed, people’s lives were improved, and jobs were saved, but the size of the ARRA was about 10% of what was needed. In addition, the ARRA, like George W. Bush’s pitifully small stimulus, and like Ben Bernanke’s huge gift to the Wall Street Banks, did not increase inflation. So, those who say that disaster always strikes when money is distributed directly to the people are wrong, and we should insist that they offer proof of their claim.

In the final analysis, our current banking system has access to an unlimited supply of money. Our new Uni system will have access to that same unlimited supply of money. The difference between the two systems is that the Uni uses our supply of money for the common good. Our current system uses it for the benefit of the wealthy and powerful. That will change under our new system. For example, interest charged by businesses and governments is a sin and it will be exterminated. Our citizens will have equal access to rights, resources, opportunities, and protections so they will have a fair chance to build long lives worth living for themselves and their loved ones. Right now, only the wealthy and the powerful have such access.

Under democrato-capitalism we will not tax the current income of the people (rich or poor), we will expand government services for the people, we will have a few sin taxes to discourage bad behavior, and we will reverse the privatization of government services. We will give some of our unlimited supply of money directly to the people so they can pay for the basic needs of life—and, if we have the will, get everyone out of debt by 2020.

 Rocky Mountains Made of Gold

The people who defend tyranno-capitalism are wrong, but they are only repeating what they were taught in school. But they should have also been taught that we should think for ourselves. I know that my father and his friends learned that lesson. They might not have learned it in school, because many of them had to drop out and work to help put food on the table for their siblings and their parents.  But if they missed the lesson in school, they definitely learned it by what they witnessed during the Great Depression and World War II. They started thinking for themselves and they never stopped. They began to do what Albert Einstein did when he produced the General Theory of Relativity and shook the universe. They designed their own thought experiments. Beginning in the late 1940s, over a period of about eight years, they pondered five economic questions with purpose and objectivity:

  • Did the gold standard impose a limitation on our money supply? They decided that it did.
  • Did this limited supply of money impose a limitation on economic growth? They decided that it did.
  • Did disconnecting from the gold standard remove all limitations from our money supply? They decided that if we could control inflation our supply of money would be unlimited.
  • Was there a way to control inflation? They decided that there was, and they designed it.
  • What effect would our unlimited supply of money have on taxation? They decided that we would live tax-free lives.

As I watched economic events unfold over the years I found that they were right much more often than they were wrong, and I found that their ideas are understandable—they make sense to me. Their conclusions were not developed from their formal educations because most of them had very little. Their discussions were an impressive display of sustained, cooperative, and rational acts by ordinary men, or as they described themselves: “common men seeking a common goal.” I was an eyewitness. Here is an example of their work.

One Saturday afternoon in the summer of 1949, my usual visit to the local movie theater was marred by the fact that the Woody Woodpecker cartoon I hoped to see was replaced by what was called a “short subject.” It was a little cinematic play about the 1849 gold rush days in California. The story was introduced by an old prospector, with a beard and gray hair, who told his audience of little boys and girls that he had gone to California to search for gold. He said he was a young man when he left home to seek his fortune. He said that he became a “forty-niner.” Then the scene changed to a creek where several men, including a younger version of the prospector, were panning for gold. That is about all I remember of that tale, because I suddenly became focused on the idea that the old prospector on the screen must be an actor. I realized that the real young man who searched for gold was probably dead by that summer Saturday in 1949. It was the first time that I realized that there really was a limit to our time on earth. From that day forward, my childhood fantasies began to fall away. The games I played on the farm no longer worked, I could not become absorbed in the little-boy worlds created by my imagination. I began in earnest to try to understand the world of adults.

Gold was a frequent topic of discussion among my father and his friends, especially Uncle John. They talked about money and the gold standard. This subject came up fairly often until I went away to college eight years later. My father and Uncle John took opposite sides of the discussion, and they seemed to relish it. Uncle John would from time to time propose that our nation should return to the gold standard. He would say that not only should we stay on the exchange standard then in effect,[viii] but we should return to the days when our currency was redeemable in silver or gold. He said that we should resume issuing and circulating gold coins as well.

My father would respond by saying, “Never!” As they talked, they would dip into the history of money, and how gold became the material of choice for minting money for national governments. But the main issue that my father pressed was that tying our money to gold created an unacceptable shortage of the funds needed to keep our economy at full speed. Uncle John would say that this shortage of money was needed to keep the economy from overheating which would lead to a collapse and another depression. This would sometimes lead to discussions of inflation of the kind experienced in some European nations after World War I. My father and Uncle John could easily lose me in their debate about the causes of that inflation. Throughout it all there was an undercurrent of strong philosophical differences between the two men. One was for easy money and the other was for hard money.

But one day something new was added to the conversation. The gold rush of 1849 came up and my father said something like this, “John, what if there was gold around here? What if huge deposits were found in the hills down in Bosque County? What if the amount of gold they dug out was a thousand times what our reserves are now? What would happen then?” Uncle John did not take the bait. He explained how the geophysical conditions necessary for the formation of accessible veins of gold, unfortunately, had not occurred in our part of Texas. So, he said, there was no gold in Bosque County. But my father would not give up. He said, “Maybe so, but there was gold in Colorado. So what if the Rocky Mountains were made of pure gold. What happens then?” The answer I remember from Uncle John was that inflation would occur because Congress would give everybody a million dollars a year, everybody would stop working and producing, and prices would skyrocket—too many paper dollars, backed by unlimited gold, chasing too few goods. But they finally agreed that moderation would be able to control inflation.

They agreed that the unlimited gold could be used to expand the economy, that more businesses could be started resulting in more, better-paying jobs. They agreed that the national debt could be paid off—at a moderate speed. They agreed that the government would never have to go into debt again. Deficit spending would disappear—there would just be “spending.” The most dramatic realization, to me at least, was that there would no longer be any need to collect taxes. This resulted in many jokes about the IRS. I gradually realized that gold was valuable only because it was scarce—and I realized that our monetary system, our system of economics, really our economic life, was shaped, controlled, by that scarcity.

Ever since those days I have often thought about mountains made of gold, and my father left me with one more idea that I think is important. He said that money is simply a medium of exchange. It is made possible by the willingness of people to accept money in exchange for goods and services. Even if money is backed by gold, or silver, or diamonds, or oil, it works only if the sellers believe that they can later buy what they want with it.

It is crystal clear that my father was right—we can activate the money we need to pay for our government’s expenses, and we don’t need to collect taxes. It is clear that borrowing money and collecting taxes to repay the debt, along with the debt ceiling law, make our government less credible, make our money less trustworthy. I wondered why we did not change our system of economics accordingly. Finally, slowly, it began to dawn on me that the reason we did not stop government borrowing is that it must be advantageous for someone. Even though there is no advantage to the people from borrowing money or collecting taxes, we nevertheless do both. We are taught a lie—we are taught that we must collect taxes in order to pay off the debt created by deficit spending.

As a practical matter we have had an unlimited supply of money for more than eighty years, and we have officially been off the gold standard since 1971, so we can repeal those laws that were intended to hoard gold—there is no need for the debt ceiling law. In fact, the rest of the world already knows that we are no longer on the gold standard—they have known it for decades—and they don’t give a damn. In fact, they are not on the gold standard either, but their governments, like ours, continue to govern as if the gold standard was still in place. The mind boggles.

When our government borrows money by selling securities it receives dollars for them, it uses dollars to make interest payments on them, and it uses dollars to buy them back when they mature. And, according to the current fairy tale, the government then takes the money it gets from selling securities and pays for its operating expenses—and those payments are made in dollars. But it is clear that the sellers of goods and services to our government cannot know if the dollars they receive are from government borrowing, or from tax revenues, or from the government printing press. It makes no difference—there is no difference—there cannot ever be any difference—at all. So, for all of these reasons, there is no need for our government ever to borrow money, or to collect taxes to raise money. In effect, our printing press is the monetary equivalent of my father’s Rocky Mountains made of gold—endless trillions of dollars made of gold.

And, over the years, my father and Uncle John began to discuss their ideas about how to handle all that gold. They talked about what would happen if the gold were discovered on private property—this would lead to trouble. They had come to think of this vast supply of gold as a national resource.  They decided that the unlimited gold supply would be better used if it were discovered on public land. They also decided that Uncle John’s fears of inflation could be handled by using the unlimited gold in ways that promoted full employment. Even Uncle John conceded that a worthwhile project, financed by Rocky Mountain gold, would do no harm if it was consistent with the costs and wages spent on other such projects here and around the world.

But we still borrow money, and there is no good reason to do it. It works against the common good. But it does work for the good of the tyranno-rich. Back when kings had to borrow gold or its paper equivalent, there was an actual scarcity of gold, and therefore there was an actual scarcity of money. Those who had the gold could leverage their position to extract profits from those who did not have the gold—thus we have banks. When we went off the gold standard, we effectively destroyed that scarcity forever. Today, there is no actual scarcity of money, but a false scarcity has been created by the confusing, convoluted collusion, really a con, between the Treasury Department, the Federal Reserve System, and the tyranni who control the Wall Street banks and our national government. This skullduggery takes place right before our eyes. It is hurting the people, and it should be eliminated. We can activate all the money we need. In fact, there was a time when Abraham Lincoln did that very thing.

 Lincoln’s Greenbacks

By the Coinage Act of 1792, and under the power granted by the Constitution, Congress authorized the Department of the Treasury to mint the following coins:

 

Table 8
Description Denomination Composition
Eagles $10.00 16.0 g pure gold
Half Eagles $5.00 8.02 g pure gold
Quarter Eagles $2.50 4.01 g pure gold
Dollars or Units $1.00 24.1 g pure silver
Half Dollars $0.50 12.0 g pure silver
Quarter Dollars $0.25 6.01 g pure silver
Dismes $0.10 2.41 g pure silver
Half Dismes $0.05 1.20 g pure silver
Cents $0.01 17.1 g pure copper
Half Cents $0.005 8.55 g pure copper

 

Paper money was issued by private banks, and some were not very reliable. But you can see that our national government was definitely limited in the number and denominations of coins it could issue. In order to determine the number of Eagles we could have issued all we had to do was divide the total grams of pure gold in the possession of the United States government by the number of grams necessary to produce one Eagle. This simple math would follow for all other kinds of authorized coins. Whatever the numbers, it was clear at the time that we did not have enough gold on hand to produce the Eagles that a growing population and economy would require.

Hard money produces shortages—be they jobs or food. Hard money produces hard times.

So, our government coinage was supplemented by securities sales and other ways of raising money from external sources. For this privilege our government had to pay interest to those who bought our securities. And, of course, the discovery of new deposits of gold (in 1849 for example), silver, and copper would have changed our coin calculation, but still the population and the economy grew. The need for money increased. Growth suffered because of it. The futures of an ever-growing work force were limited by the lack of money to finance new enterprises. Competition, one of the holiest parts of capitalist theology, was not given a fair chance to work its wonders. The men who controlled the gold made the rules, and determined who would win. Capitalists habitually say that government cannot pick winners, but tyranno-capitalists pick them by shutting down competition in favor of monopoly and price-fixing, by restricting available finance, by controlling legislation, by using insider information, and by capturing the regulators and the media.

When the Civil War came along, it was crystal clear that a great deal of money would be needed to buy materiel and to pay the soldiers. This burden was beyond the gold capacity of our government, and banks wanted very high interest rates before they would lend to the government. Someone, it is not clear to me exactly who, came up with the idea of issuing a new kind of money. But we do know that Lincoln did go along with the issuance of Greenback dollars. During the war and for nearly a century afterwards, more than $300 million of these bills were kept in circulation. These bills were called “Greenbacks” because they were printed with green ink, with some prominent red ink in strategic places. But the key element was that this money was not tied to gold or any other metal. It was tied to the full faith and credit of the United States of America. It was called “legal tender money” because the authorizing legislation said that these bills must be accepted as legal tender in payment of most debts. There were a couple of exceptions, and the legislation was fine-tuned as experience showed the way, and the bankers, who did not profit from the Greenbacks, did what they could to discredit the whole idea.

These bills were blamed for inflation during the Civil War, and they probably did contribute to it, but one should not forget that the war prevented many goods from the South from flowing into northern markets causing prices to rise, and manufacturing facilities in the North were shifted to war support which caused shortages as well. So, many things contributed to the rise of inflation.[ix] In fact, inflation is a common part of making war, even without Greenback dollars. But even though the government was actually printing money without tying it to gold or without borrowing from banks, there was no runaway inflation or hyperinflation. Lincoln’s Greenback dollars did their job. They helped to finance the war without depleting the gold holdings of the government, and they incurred no debt because they did not come into being by borrowing. Imagine that! This was our first national currency, and it was literally created by the government printing press—and it worked very well for many decades after the end of the war. But eventually, bankers, through their control of Congress, managed to kill the issue of new Greenbacks as the economic need for more money developed, and our nation went back to the bad old days of paying others to let us issue our own money. This is a positively stunning thing. Think about it. We had to borrow from private banks and others in order to raise money. The mind boggles.

Hyperinflation

Whenever I tell others that we have an unlimited supply of money, I often get three reactions: the supply of money is limited, whatever you spend must be recovered by collecting taxes, and if you don’t collect taxes to pay for what you spend, runaway inflation will destroy our economy. In other words: “Weimar! Hungary! Bolivia! Zimbabwe!”

When I ask people to furnish proof that we have a limited supply of money, the answers get vague and confusing. Some say that there is a limit on how much money the government can issue, and that is true. In 1917, Congress passed the “debt limit law” which is just what the name says it is. It says that the government must borrow to get money to pay its bills, and it can only borrow a specific amount of money before it must stop. At that point we will run out of money—we can’t pay our bills. But that is an artificial limit imposed by Congress nearly a century ago. Times were different then—we were still on the gold standard and there was an actual physical limit to the amount of gold.

However, because our dollars are no longer connected to the gold supply, there is no such physical limit and therefore the law has no real meaning, except as a political football. The two political parties rage against each other in theatrical, self-serving antics aimed at their constituents, to the delight of the for-profit television networks. This seemingly titanic struggle is nothing more than routine electioneering, but because it is couched in terms of the economic destruction of the nation it scares the hell out of a lot people—and it should, because these madmen in Congress will one day go too far and make good on their threats—they will stop paying government debts—not because there is a shortage of money, but because they are angry in the way that little children sometimes are angry. But all of this emotional blackmail is not based on reality. There is no limit on our money supply. The fact that Congress can routinely pass a simple act that raises the debt ceiling is ample proof of that fact. Once such an act is passed, life goes on just as it would have if the debt limit law had never existed. It is clear that the debt limit law is not truly a limit to the amount of money that is available to us—it is a human-made barrier to economic prosperity that has become another political tool for the extraction of votes and campaign contributions from the people—tyranni are as tyranni do, and they do it with all their might.

Others, who long for the gold-standard days, say that we can only print thirty-five one-dollar bills for every ounce of gold that the United States owns. But that is no longer true, if ever it was. Remember, during the Lincoln administration greenback dollars were printed and they were not connected to gold or any other metal. They were limited by an act of Congress, but that was just an earlier version of the debt limit law.

Then the conversation begins to drift. Nobody can give me proof that we have a limited supply of money. We can impose such a limit on ourselves if we choose, but such an imposition is not a natural limitation on the supply of money. So, I ask people if they agree that the United States Treasury can, if it wishes, turn its printers on full blast and print money from now until the end of time. Most folks agree to this ridiculous idea in the same way they would humor a four-year old. They say that such a silly thing is possible, but we shouldn’t do it because runaway inflation will ensue—then they pat me on the head.

Yes, hyperinflation has occurred in world history, and it was devastating to the nations who endured it. But it hasn’t happened very often and its causes are well understood. Matthew O’Brien published an article in The Atlantic Magazine in which he discussed the four worst cases of hyperinflation since the beginning of the 20th century: Hungary (1945-46), Zimbabwe (2007-09), Weimar (1922-23), and Bolivia (1985-86). O’Brien succinctly described the conditions that led to these economic tragedies:

It [hyperinflation] typically begins with an economic implosion. War and revolution are the usual suspects—or in Zimbabwe’s case, an ill-advised land reform. The economic collapse begets a collapse in tax revenues. Perversely, this makes the government look like a terrible credit risk. Cut off from international lenders, the government is left with a gaping hole in its budget, and no way to fill it. The choice is between pain today from austerity or pain tomorrow from printing money. It gets worse. These governments usually have piles of foreign debt to pay off, too. Whether it’s from reparations or excessive borrowing doesn’t matter so much. What matters is that big chunks of what cash the government does have is earmarked for foreign creditors. That’s politically toxic in a society going through a collapse. For politically weak governments, the temptation to substitute an inflation tax for actual taxes is enormous.

The German Weimar Republic is a very well-documented example of O’Brien’s analysis. It emerged in 1919 from the German Empire which lost World War I. Near the end of that war, the German government was ready to crumble. The arrival of American troops and supplies in 1917-18 pushed it to the edge and it approached President Woodrow Wilson to ask him to broker a peace settlement. Wilson had publicly described the kind of peace settlement he thought would be appropriate. The Germans told Wilson that they would accept a peace agreement along those lines. So the victorious allies: France, Britain, Italy, Japan, and the United States met in Versailles and worked out terms that they forced on the Germans. The Germans, the Italians, and the Japanese had no say on the terms. The terms were shocking. They required the Germans to pay millions in reparations and those payments should be in gold or in foreign currency—not in German currency. In addition the Allies took possession of all German colonies, took over the German merchant fleet, and later took over the Ruhr, Germany’s mining and industrial region.[xi] These terms clearly could never work. The Germans had no gold or foreign currency, so they defaulted on their reparations payments. For the German people there was no money, so the government printed it. This might have worked but the people by then had no confidence in the German government and soon hyperinflation erupted. Instead of creating a world at peace, the tyranno-capitalists who were in charge created World War II and the Great Depression.

None of this was a surprise. John Maynard Keynes, a British economist who went to Versailles to advise British officials on the economics of the proposed terms, warned that these harsh, draconian terms would impoverish the German people and lead to a generation of German youth who would hate the Allies. He said that the peace terms were nothing more than seeds of war. He resigned from his post as a government advisor and wrote a book, The Economic Consequences of the Peace, which became a worldwide best seller. He was right. The Weimar Republic failed catastrophically and provided fertile, prepared ground for the irrational, tyrannical, horrifying ideas of Adolf Hitler.

America is not like Weimar, or Zimbabwe, or Hungary, or Bolivia. We are the richest country on earth. People from other countries, including the countries themselves, buy our bonds. Our debts are denominated in our own currency, not in foreign currencies, or gold. Some people raise the alarm that our debt to China will bankrupt us should that country ever demand payment. But this is a false alarm. China buys our bonds because we are a safe haven. In effect China is buying certificates of deposit in a secure bank: the United States of America. We sell bonds to foreign governments to help them manage their own economies, and to keep our money strong. We don’t need to sell bonds in order to raise money. In spite of all the blustering and bluffing that goes on internationally, China and America have a mutual interest in creating and sustaining productive, inclusive economies. But if China should ever wish to cash in its bonds, we will happily pay the proper amount—in our currency.

If we use our unlimited supply of money wisely we will greatly reduce the risk of hyperinflation—but we will not eliminate it. In addition to foolish money management, there are three other things that could cause hyperinflation: rising global temperatures caused by the burning of fossil fuels, nuclear war, and asteroid or comet bombardment from outer space. We can still do much to reduce and adapt to the adverse effects of climate change. We can do little to keep Vladimir Putin, or some other tyrannus in Russia, North Korea, or some other nation, from attacking us with nuclear weapons. We can do even less to protect ourselves from a natural rain of ruin from the heavens. Any of these three catastrophes can produce the requisite conditions for hyperinflation. They each can devastate many of our largest cities, they can severely damage our food and water supplies, they can disrupt our power, transportation, and communication systems, and they can make key areas uninhabitable or otherwise useless. Huge portions of our population will become migrants, who are producing nothing, who have no place to go—and who have nothing to eat. Should we suffer any of these catastrophes, we will be like Weimar, or Zimbabwe, or Hungary, or Bolivia—but on a worldwide scale.

We are the strongest military power on earth. We are in little danger of ever being invaded by a foreign power. But if we become weak, if we have a large part of our population who are left out of our economic wealth, if we do not produce the goods and services that we need to keep our population healthy, happy, well-educated, well-fed, well-trained, well-equipped, well-housed, well-paid, and well-motivated to work long and hard, without financial distractions, then we can destroy ourselves. Climate change due to global warming can produce great economic dislocations. Right now our economy is severely, dangerously, perhaps fatally, constrained by the tyranni who control our government. They selfishly want to increase their wealth and power at the expense of the rest of us—which undermines the strength of the nation as a whole. By increasing the amount of money that is available to all Americans, by carefully managing the money supply, and by wisely spending that money, we will accelerate our economy so that we can combat the adverse effects of tyranno-capitalism and of global warming, and in so doing, raise the standard of living for all citizens.

So, what it boils down to is that money is an agreement within nations and between nations. It is a convenient way to conduct, track, and manage our economic activity. We are free to print, really “activate” is a better term, as much of it as we please, and we are free to distribute it by any system we choose. We should be grateful that we do have an unlimited supply of money, and we should use it for the benefit of all.

 Taxation and the Fire Hose Problem

Those who say that disaster will strike if we just spend, and spend, and spend are right. Our unlimited supply of money is so vast that to just turn it loose on society would be like trying to drink from a fire hose—we simply could not handle it. But you and I are rational enough to realize that we should manage our supply of money so that it will help us instead of hurt us. My father and Uncle John designed a two-part solution to the fire hose problem more than sixty years ago. They said that our unlimited supply of Rocky Mountain gold should be spent on worthwhile, non-inflationary projects, and they said that we would have to drain excess money from our system as well. Like the ancient Athenians who invested in the construction of a larger, more powerful navy, our new banking system, the Universal Bank of the United States (Uni), will identify, quantify, budget, and fund worthwhile, non-inflationary projects—we will use our unlimited supply of money for the benefit of all the people. And, by adapting the public works idea of the ancient Athenians, we will ask every American citizen, while living or after their death, to contribute their estates to public works projects. This will enable us to drain excess cash from our system, and it will enable us to lead tax-free lives.

The tyranno-capitalists have taught us, with the insidious help of many prize-winning, well-paid, and very wrong economists, that we must tax the people in order to have money to pay for the goods and services that the government must provide. And we are taught another crazy idea: we must balance our books every year. We fall for it because it has the ring of truth—after all, somebody has to pay for these things. It is an old, painful story. It is also unproductive. It holds us back. And, it is a lie.

We do not need to tax people the way we do today. We will need to remove excess money from our economy to help control inflation. We can call it taxation, I suppose, but it will be different from the taxes we know and love. Today, we are going about it in the wrong way. Today, ordinary Americans have to pay taxes out of their current income. This limits the money they have for living and for investments.

This new system will have many benefits. It will take excess money out of our economic system, thereby helping to control inflation. It will remove a great financial burden from all Americans—our income will truly be our income. We will be freed to concentrate on building our lives. And, except for a few sin taxes, our lives will be tax-free. And, the greatest benefit is that national economic growth will accelerate, America will become richer, and Americans will have a much higher standard of living.

So, how can we live a tax-free life? By paying our taxes after we are done with life. Instead of paying taxes out of our current income as we do today, we will pay them through the sale of our estates after we die. After certain carve-outs for bequests to our children and other loved ones, the remainder of our estates will be turned over to the Uni to sell—and our descendants will have the right of first refusal. If they want to buy the old home place, they can. In any case, our assets will become the property of living citizens, and the money the Uni receives from the sale will be deactivated, thereby reducing the amount of money in the system. So the solution is quite simple. America is more than rich enough to fund the costs of government at all levels—and for millennia—without taxing current income. America will tax our earthly assets after we pass on to our reward. And we will balance our books over a floating period of one hundred years rather than a period of one year as we do today. And we will include on the balance sheet all assets owned by the people of the United States, as individuals and as a nation.

Unlike the tyranno-banks that hurt Dust Bowl farmers, unlike the Wall Street banks that caused the Great Recession, unlike the tyranno-banks and brokerage houses that caused the Great Depression, and unlike our current banks that do not seem to be helping our current economy, America’s bank, the Uni, will be here for the long haul. By managing our money supply over a span of one hundred years, everything changes. As we build a better, richer, America and as our individual assets increase in value from generation to generation, the money derived from those assets will recover the money we have invested in each and every American.

Because all American citizens will be given economic assistance throughout their lives there is less pressure on parents to pass on to their children their entire estate. Their children, in most cases, will be financially secure by the time their parents reach the end of their lives. In such cases parents can look for other ways to give their wealth.

For example, a citizen can give her assets to the nation. She can take a look at a list of projects that are scheduled to be funded by the people and she can direct that her assets be applied to project(s) she favors. Her contribution will be duly noted in the historical records of the project(s). If a citizen does not want to do this then her assets will be sold after her death and the money generated will be deactivated, thereby reducing the amount of money in the system. The assets that are sold will continue to contribute to the wealth of our nation. Of course, citizens will not have to wait until their death to give assets to worthwhile projects. This kind of generosity has been a wonderful part of our history. Democrato-capitalism will provide enough capital to all our citizens to enable them to go as far as their efforts and talents can take them. This will result in a much wealthier population, and therefore, a much wealthier nation. By investing in the lives of every American, we, the people, will be investing in our own futures.

This tax-free life is a gift from all who came before us, who knew that their lives should have been better, who paid taxes and quietly bore the arrogance of the IRS and the plutocrats, and who, all the while, wished for better times for themselves and better lives for us, their posterity.

We the people intend to inhabit the United States for thousands, hopefully millions, of generations, and democrato-capitalism is the economic system that will make it possible for us to survive and thrive. Tyranno-capitalism is a wasteful, selfish system that ravages our people and our national resources for the short-term benefit of a few. Democrato-capitalism will conserve our resources so that over the long-term they will be available as needed. Money is a natural, national resource and we will distribute it to the people just as we will distribute water. This means that we will give each individual a job and a basic amount of money to serve her basic needs. When problems arise, either human-made or natural, our economic system will be adjusted to protect the people and, to the extent possible, enable them to live useful, productive, normal lives. No more depressions, no more grand larceny perpetrated by tyranni in positions of economic power. Our economy will work for the common good and it will transform our lives.

All American citizens are, and of right ought to be, entitled to equal access to rights, resources, opportunities, and protections, so that they can go as far as their talents and efforts can take them, and they can build long lives worth living for themselves and their loved ones.

Our unlimited supply of money will make these things possible.

Notes

[i] Columns 1-4 of Table 6 are identical to the same columns in Table 4 (p. 301). Table 4, Column 5, shows average household income distribution under tyranno-capitalism.

[ii] See Table 4, (p. 301).

[iii] This was about 1.1% of the amount needed. You may wonder how Bush came up with the money. He printed it—actually some bureaucrats and bankers, acting under his command, pressed a few computer keys and lo, the dollars were activated from our unlimited supply of money.

 

[iv] In February of 2015, Walmart announced that it would increase the wages of its employees so that the lowest-paid of them will get $9.00 per hour by April of 2015. And it also said that all its workers would be earning at least $10.00 per hour by February of 2016. These increases are years overdue and still inadequate. The minimum wage for Walmart employees in Texas should immediately be raised to $15.00 per hour which is well above the grossly inadequate current minimum wage in Texas of $7.25. Minimum wages in other states should be adjusted to match the increase in Texas of 107%.

 

[v] http://www.cnbc.com/2017/03/24/heres-how-much-money-middle-class-families-earn-in-every-us-state.html

 

[vi] James “Jamie” Dimon is President and CEO of JPMorgan, which is the largest American bank.

 

[vii] The checks and deposits issued by Bush’s stimulus program never produced any actual, physical money. They produced electronic bits and bytes in various bank accounts. Our supply of money is virtual, it becomes real when it is activated by electronic changes in bank accounts. When we deactivate money we simply make more electronic changes in those bank accounts and reduce the account balance.

 

[viii] Uncle John was talking about the exchange agreement established by the Bretton Woods Conference of 1944. That agreement prohibited individuals from exchanging their paper dollars for gold, but permitted the central banks of other nations who were parties to the agreement to exchange their dollar holdings for gold. Uncle John and many others of the time maintained that it was a big mistake for us to go off the gold standard, and they wanted to return to the golden days of yesteryear.

 

[ix] Inflation is caused by the inability of sellers of goods and services to keep pace with demand. This is a failure of capitalism, and it reduces the purchasing power of capitalists. This failure and the shrinking value of their piles and piles of dollars is why capitalists hate inflation as if it was the murderer of their mothers. But this situation is not unusual. Capitalists (especially tyranno-capitalists) have always blamed others for their failures, and they have always taken credit for good things that they did not do.

 

[x] http://www.theatlantic.com/business/archive/2012/03/the-hyperinflation-hype-why-the-us-can-never-be-weimar/254715/

 

[xi] Bill Mitchell is a Professor of Economics at the University of Newcastle, NSW, Australia. In his blog he discusses the causes of hyperinflation. Here is the link: http://bilbo.economicoutlook.net/blog/?p=3773

 

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How Ben Hogan Helped Phil Mickelson

 

January 21, 2013: Phil Mickelson made some remarks today about his income taxes. He has a real problem, and he is complaining about it. But he should keep quiet. Lots of men suffered, sacrificed, and worked to build the PGA Tour which is the immediate basis of Mickelson’s earnings. Pros of Mickelson’s generation seem to take their ability to earn great sums of money as some sort of natural, God-given right. But it isn’t. So without the hard work, the innovation, the sense of fairness and justice of Ben Hogan and others of his generation, Phil Mickelson would not be worried about his income taxes because he might not have any income.

I am an old man. I am an avid golfer. I played my first round in 1946. My father, my brothers, and assorted uncles and cousins play golf. We grew up not far from where Ben Hogan was born, and my youngest brother became a friend of Hogan’s. Hogan took his first job as a professional just 30 miles west of my front door. We live and breathe golf, and we are steeped in the lore of Ben Hogan. In my garage I have one car, a riding mower, and barrels of golf clubs. I coached golf in high school for a while more than fifty years ago. I play in tournaments of many types, and I can still make the young men cry on the course. And I love it. My handicap is in the low single digits, and I am not the best golfer in my family. I say all this because it was fun, but also to let you know that my family and I are knowledgeable about the game.

We love to watch Phil Mickelson. We love his willingness to take chances. We admire his skill with his wedges, especially around the greens. But Ben Hogan had such skills as well. At one time he played on Shell’s Wonderful of Golf in a match against Sam Snead. They both still had all their skills. At the end of the match Hogan had hit seventeen greens in regulation, the other he hit in one less than regulation. He played a perfect round and beat Snead. In the aftermath, Snead was interviewed by a Houston newspaper reporter. The reporter asked: “Does Mr. Hogan talk much during the round?” Snead replied: “Talk? He talks all the time. I couldn’t get him to shut up.” The reporter asked:  “What did he say?” Snead said: “He said the same thing every time. He said, ‘You’re away.’”

In 1949 Hogan was nearly killed in an automobile accident in far West Texas. In fact, the place was so remote that he nearly died before help could reach him. In 1950 he returned to the tour, but his legs were so damaged that he had to shorten his schedule because it was difficult for him to walk 18 holes in one day. In 1953 he was only able to play six tournaments and he won five. After winning the Masters and the U.S. Open (on the final day, he had to walk 36 holes), he entered the British Open. He had to qualify by walking 18 holes. Then in the tournament proper he had to walk 36 holes on the final day. He won by four shots and his score improved each round. He could not play in the fourth major, the PGA, because it overlapped with the British Open.

There are four “Hogan’s Alleys” in the world. One is at Carnoustie, the site of his British Open victory. It is located on the left side of one par five hole’s fairway, near an out of bounds fence. The landing area for his drives was very narrow, but he hit it all four rounds. No other player had the nerve to try it. That narrow, dangerous space became known as Hogan’s Alley. Riviera Country Club in Los Angeles is also known as Hogan’s Alley because of his wins there including one U.S. Open. Likewise with Colonial Country Club in Fort Worth where Hogan won several times. The fourth Hogan’s Alley is actually a street in the town of Dublin, Texas, where his family lived when he was born.

Hogan was also the greatest student of the game that the game has ever known. His 1957 book about the fundamentals of golf was earthshaking (in the golfing world at least). Many great modern teachers use his insights as a basis for their systems. His book has been reprinted more than 60 times. Some of these teachers have even written books about his book. He understood the game better than anyone, then and now.

I got to watch Hogan play at the Colonial Invitational a few times and it was a beautiful thing to see. But the most uncanny thing was the sound that came when his club struck the ball. It was like no other strike. Since that time I have heard other observers, professionals, remark on this sound. He played a different game from everyone else, and if his legs had held up, his records might well have been untouchable.

What has this to do with Phil Mickelson? Plenty. Hogan’s record is rich with accomplishments at the highest levels, and he is one of only five golfers to win all four of the modern majors: the Masters, the U.S. Open, the British Open, and the PGA. The others are Gene Sarazen, Gary Player, Tiger Woods, and Jack Nicklaus—the best of the best. Hogan is also a member of golf’s great hall of fame, the four-time winners of the U.S. Open. The other three are Willie Anderson, Bobby Jones, and Jack Nicklaus. Hogan is, and will remain, in the top echelon of great golfers. Mickelson is somewhere in the middle of the second tier, and there he will remain.  Why is this the case? Mickelson is extremely talented, so what is different between the two men, Hogan and Mickelson? The difference is that Hogan was highly intelligent. He had brains. Mickelson? Not so much. He has squandered his chances to be a great golfer and instead became a great entertainer.

But there is even a stronger connection between Hogan and Mickelson and professional athletes of all kinds. In 1957 Hogan sued a publisher for unauthorized use of some photographs of his swing. He won, and that case became the basis for all professional athletes licensing of their name and image. So Mickelson’s 2012 income of $47.8 million includes $43 million from endorsements which he would not have received but for Hogan’s intelligent decision to bring suit. Many athletes owe Ben Hogan a debt.

So no one should give a second thought to Mickelson’s ideas about anything. He seems to be a really nice guy, but he is a dummy, and he knows it. That is part of his charm. Check the Internet. You can find the interview where he blew the U.S. Open Championship in a truly stupid way. In that interview he admits his stupidity. And it is not the only time he has done such a thing. We still love Mickelson, and we will always root for him. But we will never take financial advice from him.

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Tyranno-Capitalism

Our system of government was deliberately designed by some of the greatest minds our nation has ever known. But our system of economics was not designed by anyone—it simply developed over many years under the brutal process of evolution by natural selection, sometimes known as “the survival of the fittest,” other times known as “the invisible hand” or “the free market,” but more accurately described as “Nature, red in tooth and claw.”[i] This system is usually referred to as “capitalism,” and because it overwhelmingly works against the common good, I call it “tyranno-capitalism.”

Slavery was monstrously cruel in many ways: masters whipping and murdering their slaves, raping them, breeding them and selling their children, breaking up families by selling a parent or a child down the river—the horrors were many, and they are eternally sickening. Slavery was a business model, the original form of tyranno-capitalism. The slave owner was no rocket engineer—he was a tyranno-capitalist. By becoming a slave owner, he had satisfied one of the two primary desires of tyranno-capitalists—he had power over others.

To satisfy the other desire, to become wealthy, he understood what he had to do. He had to put his slaves, his capital, to work on some task that would produce something that could be sold for a price that would exceed the costs of running his plantation, including the minimum expenditures necessary to keep his slaves alive and strong enough to work as long as there was light to see.

For a while plantations did not pay very well because there was no crop that would produce the profits the master wanted. But Eli Whitney invented the cotton gin which reduced the labor needed to produce a bale of cotton. Tyranno-capitalism flourished. The cotton planter was wealthy and he had power over others.

Unfortunately, tyranno-capitalism is still the major business model in America. Since the beginning, most of America’s growth has been financed by unpaid slaves and the underpaid laborers who succeeded them. This resulted in an unfair transfer, a theft, of wealth from the slave and the laborer to the benefit of the tyranno-capitalist. After a long, long time American workers were able, for a short while, to demand and get better wages and benefits. But the tyranno-capitalists, in their fevered pursuit of profits, busted unions and sent jobs overseas to countries that paid very low wages. Even though the mass of American workers, underpaid as they are, cry out for resources and opportunities that will give them a better standard of living, the tyranno-capitalists manage to keep wages very low, and they manage to let the infrastructure erode as they plunder and pollute the planet—birds do not foul their nests, but we do. Thanks to tyranno-capitalists, we are fatally fouling the only nest we have.

Most institutions and systems of government have two forms: tyranno and democrato. It all depends on who controls them. But slavery has only one form: tyranno. There is no such thing as democrato-slavery. Capitalism comes close to being a single-form system, but, thank goodness, it can have two forms. I have worked for a few capitalists, and a small number of them were very successful. They all practiced democrato-capitalism—their enterprises worked for the common good. They were good businessmen, aggressive, smart, and indefatigable, and they were also fair, they kept their word, and they not only tried to do the right thing, they almost always succeeded at it. It was a pleasure to have a very small part in their enterprises and watch them grow by leaps and bounds—it was a rocket ride. I am sure that there are many democrato-capitalists hard at work right now, and I wish them well—America needs them. But, at this moment, in this world, tyranno-capitalism is ascendant. Our national and state governments are accomplices in forcing the people to serve tyranno-capitalism.

This should not be surprising. The Framers, particularly James Madison, designed a system of government that was vulnerable to takeover by capitalists who did what capitalists do: find an opportunity and exploit it. Unfortunately, human nature plays a decisive part in such a situation and tyranno-capitalists, because they are ultra-aggressive, because they are willing to do whatever it takes to win, became the dominant force in our national economic life. They are like the white supremacists who ruled the tyranno-South: they are too sure of themselves, they are certain that they are above the law, extortion is their favorite tool, they will never give an inch, they will not listen to reason, they understand only force, they are often self-destructive, and they are wrong—thank goodness they do not have their own militias.

But they do have their own government. Tyranno-capitalists and the tyranni who control our national and state republics fit together perfectly—they show the effectiveness of symbiosis in the accumulation of power and wealth. When they come together to form tyranno-capitalism they become a powerful economic engine—they become a faction which does more harm than good. But if tyranno-capitalism could become democrato-capitalism there would be no better system for building the kind of economy that the people deserve, and that they have waited so long to see. And there is no better system than democracy for controlling tyranni. So, there is hope. We can restructure our government, and we can control capitalism so that it works for the common good. It won’t be easy—not because of any systemic or technological obstacle, but because of human nature.

Invisible Hand or Heavy Hand?

 There are three phrases that can be used to describe our system of economics. The first two, the most well-known, were written in 1776 and they have been of great importance in the story of America. I am speaking of “all men are created equal” and the “invisible hand.” The first comes from the Declaration of Independence, written by Thomas Jefferson. The second comes from An Inquiry into the Nature and Causes of the Wealth of Nations, a book written by the Scottish moral philosopher Adam Smith, who is often regarded as the father of economics.

The third phrase is one that is rarely used, but I think it is very important to this discussion. The first two phrases, it is claimed, connote freedom, liberty, equality, and independence—but only Jefferson’s actually does. The third describes the dark side of tyranno-capitalism. It describes the harsh, oppressive exploitation of ordinary workers in America and throughout the world. I am speaking of the “heavy hand.” The “invisible hand” is not really invisible. One can easily see it at work should one wish to do so. When one does decide to look, one can see how tyranno-capitalism takes advantage of its workers. One can see that the “invisible hand” is truly the “heavy hand” of exploitation.

The meaning of “all men are created equal” is crystal clear on its own terms; there is no need to add anything. Instead of needing a context to give it meaning, it actually gives meaning to any context in which it is considered. For example, in the context of the law, “all men are created equal” is the fundamental starting point for anyone making or enforcing the law. In the context of freedom to pursue life, liberty, and happiness it reminds us all that there can be no limit to what one can choose to do with one’s life, so long as that choice does not harm others in pursuing their life, liberty, and happiness. It is an essential element in defining civil rights, educational opportunity, and economic opportunity. And, in the very beginning, it served a powerful purpose—it gave the citizens’ army and militias of the loosely-united colonies something to fight for, and even to die for.

But as I showed in several earlier chapters, this crystal clear meaning was rejected by tyranni who did not believe in equality for certain groups, and who relied on tradition, ideology, false hypotheses, hypocrisy, intimidation, torture, religion, states’ rights, misogyny, xenophobia, homophobia, terrorism, racism, and pure, simple hatred to deny equality to not-whites, not-males, not-Christians, not-heterosexuals, not-natives, the disabled and the not-well-to-do.  The Framers designed a system that has enabled such deliberate nastiness to thrive for more than two centuries—and it is still going on. Even if we grant that the Founding Fathers were caught up in a situation that was beyond their power to change, there is no excuse today, and none since the end of the Civil War, for allowing inequality to diminish us. Just because tyranni believe in inequality there is no reason to let them continue to force it on us and our children.

Unlike the phrase, “all men are created equal,” the meaning of “invisible hand” is not crystal clear on its own terms—it must be explained. “All men are created equal,” is an absolute, self-sufficient term, but “invisible hand” is not absolute, it must be understood in terms that are supplied by some context—which means that like a verse from some holy book it can be used to mean anything. But Adam Smith, the author of the term, did supply context, he did define it. Here is what he said (emphasis added):

But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.[ii]

This long paragraph contains the only mention of “invisible hand” in Smith’s masterpiece of early economic thought, and it is used simply to ornament his description of what might happen in an ordinary economic event: a merchant deciding whether to invest his capital in foreign or domestic industry. It seems that if capitalists are able to invest in endeavors of their own choosing, without being forced to do so by an agency of government, then they might choose to invest in domestic industry to satisfy their own purposes, and accidentally, society might, but not necessarily, benefit as well. Thus, in his example, Smith says that the serendipitous coincidence, should it occur, would magically materialize as if guided by an “invisible hand.”

Samuel Fleischacker, a scholar who specializes in Adam Smith as well as the history of moral philosophy, published On Adam Smith’s ‘Wealth of Nations,’ A Philosophical Companion, in 2004. He discussed Smith’s “invisible hand” paragraph in detail, and here is part of what he said (emphasis added):

So Smith is by no means pronouncing a universal rule [in this paragraph]. It would be odd, moreover, if such a rule appeared in this context. Smith is in the midst of making a relatively small point (that merchants will tend to base even their “carrying trade” in their home ports), and has adduced a few plausible but weak generalizations about merchant behavior in support of that point. If he wanted to proclaim that an invisible hand always guides individual economic decisions toward the good of society, we would expect that proclamation at the opening of the book, as part of his grounding theory of economic activity. The theory Smith gives us there does support the claim that individuals generally promote the social good in their economic behavior without intending to do so, but there is no hint that this holds in all cases, much less that it is guaranteed to hold by either empirical or metaphysical laws.[iii]

Thomas Jefferson gave the phrase “all men are created equal” the most prominent position in the Declaration of independence. After a single-sentence opening, he introduced self-evident truths and made “all men are created equal” the foremost of them. On the other hand, Smith introduced “invisible hand” on page 192 of the copy of Wealth of Nations in my bookcase—that is very far from pride of place. Smith by no means intended for the phrase, “invisible hand,” to be the primary operating principle for one of the largest economies the world has ever known—in fact, he did not think it was an operating principle of any kind.

In another place in Wealth of Nations Smith observed that capitalists are not to be trusted. He was talking about merchants and manufacturers and how they deal with ordinary people. He said (emphasis added):

Merchants and master manufacturers are, in this order, the two classes of people who commonly employ the largest capitals, and who by their wealth draw to themselves the greatest share of the public consideration. As during their whole lives they are engaged in plans and projects, they have frequently more acuteness of understanding than the greater part of country gentlemen. As their thoughts, however, are commonly exercised rather about the interest of their own particular branch of business. than about that of the society, their judgment, even when given with the greatest candour (which it has not been upon every occasion ), is much more to be depended upon with regard to the former of those two objects, than with regard to the latter. Their superiority over the country gentleman is, not so much in their knowledge of the public interest, as in their having a better knowledge of their own interest than he has of his. It is by this superior knowledge of their own interest that they have frequently imposed upon his generosity, and persuaded him to give up both his own interest and that of the public, from a very simple but honest conviction, that their interest, and not his, was the interest of the public.

The interest of the dealers [merchants and manufacturers], however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market, and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can only serve to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens. The proposal of any new law or regulation of commerce which comes from this order [merchants and manufacturer] ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.[iv]

Smith is clearly rejecting the concept of the “invisible hand” in these passages. Instead of just letting the “invisible hand” work its magic, he warns his readers to be suspicious of any proposal that comes from the capitalists. He says to always take great care to analyze such proposals before agreeing to them. In another chapter Smith warned us that capitalists who are in the same business will use every chance to scheme against the interests of the people—a clear example of the “invisible hand” at work. He said:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.[v]

Smith’s lone use of the term, “invisible hand” has been deliberately pulled out of context and repeatedly used to the great detriment of the people. His clear message was to be wary of capitalists.

Tyranno-capitalists favor the “invisible hand” for several reasons. The one that has the greatest adverse impact on society is that there is no need to worry about the common good—it will “theoretically” emerge from the independent and self-serving actions of individuals who are participating in the economy as producers and as consumers. To tyranno-capitalists, this means also that there is no need for central planning, or for government intervention in the economy—self-interest will suffice. Another important reason that tyranno-capitalists embrace the “invisible hand,” is that it gives permission for the worship of the concept of the “free market.” This concept says that all is fair in love, war, and the economy. To tyranno-capitalists the term “free” indicates that the market is free from government regulation, but it really is more accurate to say that “free” stems from the term “free-for-all,” which is a schoolyard game in which there are no rules against roughing up the other players—such a game is better described as a brawl, or a scam, or a bubble, or as worthless derivatives—or as Wall Street. Because there are no rules in a free-for-all, there is no such thing as fair play.

The terms “Adam Smith, the invisible hand, and the free market,” are all used by tyranno-capitalists, perhaps unconsciously, as aliases for evolution by natural selection, the eternal Darwinian struggle. In such an economy it is clear that there are far more losers than winners, and it is also clear that the net outcome today, next year, or decade after decade, is not good for society as a whole. Adam Smith realized that the economy of a society is best served when it is organized around rules of fair conduct, and this understanding would cause him to reject the distorted application of his views as support for the theories of tyranno-capitalism.

Just as there are many flaws in the Madisonian republic, there are many flaws to be found in relying on the “invisible hand” and the “free market” as the operational basis for our system of economics. There is one deficiency that we can easily understand by recalling some of our high school or college math. It involves the concept of “vector” as it is often taught as part of courses in Algebra, Trigonometry, Analytical Geometry, Calculus, Differential Equations, and the like. A vector is simply some force that has both magnitude and direction. A common illustration of vector is the speed and direction of the wind. In my part of Texas it is usually 12 miles per hour from the south—and because of this constant exposure we Texans who golf can usually learn to play well in the wind. But if we apply the concept of vector to the invisible hand, we can easily see that it simply does not work.

Imagine that our economy is a giant, seagoing vessel with huge sails and it is traveling across an endless ocean which is dotted here and there with islands. Some of the islands have wonderful treasures such as houses, cars, permanent jobs, appliances, pensions, educations, health insurance, savings accounts, and more while others have great terrors such as unemployment, illness, bankruptcy, poverty, hunger, poor education systems, and the like. Some islands have peaceful lakes with thriving and edible fish as well as clear, fresh, safe water—while other islands have dangerous reefs made invisible by leaked crude oil spewing from exploded, abandoned drilling rigs. Imagine that each of our economic institutions—individuals, families, small companies, giant multinationals, big banks, small banks, and all the rest—is a vector of wind. Each element blows in the direction and at the speed it wants so that it can reach the island it wants. In this way, the great vessel of our economy is pushed by the vectors from each economic interest as they blow in different directions and with different speeds on our economy’s sails. No one can predict which direction our economy will take, no one can predict how fast it will move, no one can predict what treasures or terrors it may encounter, and under the unregulated invisible hand, no one can persuade the various economic interests to coordinate their vectors and move the economy toward the island containing the common good. But our economy will definitely move, and this movement, according to tyranno-capitalists, is the magical invisible hand. All of these vectors blowing on the sails will send us toward something, and for some of us it will be in the right direction, while for others it will be in the wrong direction. So, tyranno-capitalists, when they talk about the splendor of the invisible hand, are talking nonsense. It is a myth—it is a false hypothesis. If the common good is ever reached by the invisible hand it will be brief, accidental, and rare.

The situation becomes even more troublesome when one considers that our various economic elements have greatly varying vectors. Some giant multinational corporations may have the economic strength of millions of ordinary citizens, others have government influence that will enable them to unfairly magnify their force, and still others function as pirates (think Wall Street banks) who will swoop down on ordinary citizens who have been lucky enough to enjoy a fair wind and to get their hands on some treasure. By hook or by crook, these pirates take that treasure and move on. When the victims of such piracy ask for help they discover that the protective armada (think securities-rating firms, the Department of Justice, Congress, the Fed, and bank regulators) which they expected to come to their aid has been bought off by means of a booty-sharing scheme concocted by the pirates.

Another serious deficiency of the invisible hand is the idea that central planning is a bad thing. Of course that is utter nonsense. Many of our greatest national successes were achieved by centralized planning. We were able to slowly climb out of the Great Depression (which was caused by the invisible hand) due in large part to the innovative plans developed by Franklin Roosevelt and his cadre of far-sighted thinkers. Most national institutions were subject to government plans for conducting World War II (which was caused by the invisible hand). I doubt that we would have been successful if we had left the war effort to the invisible hand of defense contractors who would have produced whatever they liked so as to get the order for war materiel while maximizing their profits—after all, Dwight Eisenhower warned us in his farewell address to be wary of the military-industrial complex. Almost all of our infrastructure development since the Civil War has been a result of government planning and funding. The backbone of our national transportation system is the interstate highway system started by President Eisenhower. And don’t forget NASA.

The folly of letting the Wall Street banks run free in the design, marketing, rating, and insuring of dubious financial instruments resulted in the crash that occurred at the end of the George W. Bush administration. One can say that the government did a rotten job of regulating the banks, but one cannot say that the crash was the result of government planning. In fact, the crash is a perfect example of just how the invisible hand works. If it is not regulated and if it is not subjected to any planning, then it produces disasters on a vast scale. Such is the problem with extreme weather due to global warming. The lack of government regulation and planning has enabled the “invisible hand” of tyranno-capitalism to run free thereby polluting our air and water and placing the future of our civilization and our species in grave danger.

 Tyranno-Capitalism vs. the People

 According to tyranno-capitalist theory, the people should interact with our system of economics in such a way that the invisible hand will, in real time, combine the dynamic sums and vectors of all the choices that the people have made and then, also in real time, produce the goods and services that are consistent with those choices. So, according to tyranno-capitalist theory, if the economy is not what the people want then they, the people, must have made the wrong economic decisions. They must have done a bad job of interacting with our system of economics. Even though they knew what they wanted, and even though they made choices that they were told would produce the economic life they wanted, they didn’t get it. So it must be their fault, because tyranno-capitalism, if the people made the right choices, would give them what they want. If they don’t survive or thrive, then that is life. Survival of the fittest don’t you know? Evolution by natural selection is always on the job.

But I know the people, lots and lots of them, and I am even related to some. The great majority of them are smart, honest, hard-working, and trusting. They even believe their leaders who tell them that tyranno-capitalism is the answer, just as they believed their leaders who told them that we live in a democracy—and they continue to believe their leaders as each new generation comes of age. Tyranno-capitalists and government officials tell them that if they get an education (even if they have to borrow to pay for it), and if they work smart and hard, and if they buy a home and a car and a refrigerator, and clothes, and if they buy the latest phone as soon as it comes out, and if they buy all the rest that they see advertised on television, and if they watch televised sports on the latest television sets while eating the right salty treats and while drinking the right low-calorie beer, then they will get what they want. So, it couldn’t be the people. They have made the right choices—they have impoverished themselves doing the things that tyranno-capitalists and the government tell them to do. There must be something else that is wrong.

If we look at the record, we can see that tyranno-capitalism, and its miracle-working figment of the invisible hand, produced slavery, centuries of discrimination against non-males, non-whites, non-Christians, non-heterosexuals, non-natives, the disabled, the lower classes, voter suppression, hatred of unions and foreigners, waste of national resources, huge financial disparities in our population, damage to the environment on an immense scale, global warming, several recessions including the recent Great Recession, the collapse of the Wall Street banks, the death and destruction caused by the murderous, tyranno-capitalist greed of British Petroleum in the Gulf of Mexico in 2010[vi], the collapse of the savings and loan industry a few years ago, a few wars, the Great Depression that my parents and grandparents lived through—and much, much more. None of those things was done in service of the common good.

The people haven’t been making the wrong choices—that is not the problem. The problem is that the people, because of our Madisonian republic with its three corrupt branches of government, have not been allowed to make the important choices. For example, if the people were allowed to make the important decisions then all of the failures listed above would have never taken place. We, the people, would have chosen to have a clean environment, we would have chosen to keep jobs in the United States rather than send them to China, we would have chosen to pay our workers a fair wage that keeps pace with corporate profits and productivity increases, we would have chosen to educate and nourish our children, we would have chosen to maintain our infrastructure, and all the rest. But under tyranno-capitalism the people are not allowed to make the decisions that are important to the economic welfare of our nation. They have no power to make any choices other than to buy their pills at this drugstore or that one, or to buy their nuts and bolts at Home Depot or Lowe’s, or to buy their clothing at Wal-Mart or at the little shop on the square. The people have no power to bargain with their employers for decent wages and benefits. So, the invisible hand never worked for the people, it worked only for the tyranno-capitalists. The people never got a chance to make choices that would make a difference. We can see clearly now, the invisible hand is really many hands, and they are not invisible. Tyranno-capitalism is controlled by, is in the heavy, oppressive hands of, tyranno-capitalists. In many respects, our Madisonian republic has been replaced by tyranno-capitalism.

How do I know that the people have not been allowed to make the important choices? I know because the Framers freely admitted it—they were proud of it. The authors of the Federalist essays repeatedly, and unfairly, disparaged the Greek democracies. In Federalist 10 James Madison told us that in his theoretic, “pure” democracy representatives were not used. Instead, he claimed, all the citizens made all the decisions themselves which would lead to destruction of the government by factions. Therefore, according to Madison, our nation had no choice but to implement his Madisonian republic, the one with the theoretic “scheme of representation.” A few representatives, Madison said, were better than many or no representatives—a few representatives were better than letting the people make important choices. But during the debates about whether to ratify the Constitution someone challenged Madison’s sales pitch. This challenger rightly pointed out that in the ancient democracies representatives were used. So, if those ancient democracies were vulnerable to factions, as Madison claimed, and if those democracies used representatives, wouldn’t Madison’s representative republic be vulnerable to factions as well? This was a challenge that had to be answered, so Madison responded. In Federalist 63 he made it clear that even though the ancient democracies and the Madisonian republic both relied on representatives, there was one critical difference. Here is what he wrote (emphasis in the original):

From these facts, to which many others might be added, it is clear that the principle of representation was neither unknown to the ancients nor wholly overlooked in their political constitutions. The true distinction between these and the American governments lies in the total exclusion of the people in their collective capacity, from any share in the latter, and not in the total exclusion of the representatives of the people from the administration of the former. The distinction, however, thus qualified, must be admitted to leave a most advantageous superiority in favor of the United States.

You may recall that in the second chapter I pointed out that the Federalist essays were written in haste and therefore some of the arguments they presented do not make sense. The paragraph just quoted at first seems to be a good example of that point, but it is not. I think that the author said what he meant to say, but he did not want his readers to fully understand the consequences of what he said, so he brilliantly constructed it to make his readers shrug their shoulders and move on. The author of this confusing language actually was saying this:

Yes, representatives were used in the ancient democracies, and they are used in our American state governments, and they will be used in our new republic. But the use of representatives did not cause the ancient democracies to fail, the use of representatives has not caused our American state governments to fail, and it will not cause our new republic to fail. The failure of the ancient democracies was caused by the people having too much transformative power. The people of the ancient democracies could decide among themselves what they wanted their democracy to do and then order their representatives to do it. In effect, the citizens of these ancient democracies retained and exercised all transformative power, and their representatives were delegated administrative power only. In effect, the people ruled. This resulted in all of the failures cataloged in Federalist 10. But we do not have to worry about this in our new republic.

Under our new Constitution, the American people cannot decide for themselves what they want the government to do and then order the government to do it. The people can only delegate their transformative power to a small group of elected representatives.  The American people can only decide which representatives they want to give their transformative power, and in turn, these few representatives will meet in person to decide what they want the government to do—only they will have—only they will exercise—the transformative power of the people. Under the new Constitution, the people will never be permitted to act in their collective capacity. In this way the governing elites will hold all transformative power and thereby be assured that they can keep the factious masses under control. America will be safe in the hands of the elites.

So, in Federalist 63 Madison wanted to show that there was an important difference between the proposed new government and the ancient ones, and that difference was to exclude the people from acting in any way except through their chosen representatives. This “true distinction,” as he called it, emphatically confirms that the new constitutional system, with its scheme of representation, was intended to mute the voice of the people and steal from them their transformative power. And because our national government, by design, is controlled by the wealthy classes, then the transformative power of the people is given over to the invisible, but heavy, hand of tyranno-capitalism which makes all the important economic decisions. This is the element of tyranno-capitalism that causes it to fail. Just as it is designed to do, it works for the good of a few individuals but not for the masses. In other words, our system of government is deliberately designed to keep the people from using their transformative power to decide whether jobs should be kept in America or sent overseas. Our system of government is deliberately designed to keep the people from using their transformative power to decide whether we should maintain our infrastructure or let it crumble, or to decide whether we should give our children good breakfasts and good educations or let them enter adulthood unprepared to fit into society—you get the idea.

The Great Depression and Tyranno-Capitalism

The best example of the propensity of tyranno-capitalism to work against the common good was impressed on me by those World War II veterans who met in our home to discuss America’s institutions. I listened to them from 1946, when they returned from the battle, until 1957 when I went away to college. They talked of many things, but the most impassioned discussion was about the Great Depression and the effects it had on them and their parents. Most of these young men were not quite teenagers when the Wall Street stock market crashed. Then they spent most of their teen years living through the Depression. From those experiences they developed a clear understanding of the weakness of our economic system.

Those young men looked at their own lives and at the lives of their parents to serve as a guide as they began to define what our new, postwar economic system should do for the people. They were dead certain about one thing, and when they talked about it I could often hear anger in their voices. They knew beyond any doubt that America had failed their parents, and America had failed them as well. They would recall the way the Great Depression had virtually destroyed the lives of their parents and ultimately drove them to despair. They would remember what their own formative years had been like. Hunger was no stranger to many of them. Being kicked out of their homes was a burning memory for some.

They also were certain that Herbert Hoover was to blame. They did not blame him for the 1929 crash, but they talked about his refusal to do anything to help the people who were suffering. In their discussions I heard for the first time about Hoovervilles, and I heard them talk about Hoover ordering General Douglas MacArthur to obliterate the Hooverville that had been constructed by World War I veterans who were seeking the bonuses they had been promised. This terrible act took place in 1932. Those veterans of World War II probably learned of this misuse of military power from their parents or other adults with whom they had contact. The stories of those adults probably led them to dislike Hoover and MacArthur. They ridiculed MacArthur’s famous “I shall return” proclamation after he fled the Philippines just ahead of the invading Japanese army. They were offended by his use of the first person singular pronoun.

So, it became crystal clear that those veterans were demanding that such mistreatment at the hands of the government should never be repeated. They thought that the World War I veterans should have been given their bonuses in 1932.[vii] They wanted help to be given directly to the people if serious economic downturns should come again. They remembered how hard it was to watch their parents suffer through the Depression and they did not want their own children to witness the same tragedy.

Needless to say, the heart-felt words of those young men left an indelible impression on me, and I have read a great deal about the Depression and about how Hoover and then Franklin Roosevelt handled it—and I have heard many first-hand accounts of what life was like in those awful days. In my reading about Hoover I found many authors who defend his actions, but their defenses are flimsy. At bottom, when a human being has great power he can be judged by what he does with that power. Hoover worked against the common good; he was a tyrannus.

On August 11, 1928, Hoover made a speech at Stanford University in which he accepted the Republican Party’s nomination for the office of President of the United States. He made promises that were very well received by a very large part of our population. After World War I the economy slowed and farmers were particularly hard hit. Hoover knew this and he said:

One of the oldest and perhaps the noblest of human aspirations has been the abolition of poverty. By poverty I mean the grinding by undernourishment, cold, and ignorance, and fear of old age of those who have the will to work. We in America today are nearer the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us. We have not yet reached the goal, but, given a chance to go forward with the policies of the past eight years, we shall soon with the help of God be in sight of the day when poverty will be banished from this nation. There is no guarantee against poverty equal to a job for every man. That is the primary purpose of the economic policies we advocate.

Hoover’s first promise was a lulu. He said that the end of poverty was in sight and in order to reach that day, his administration would work to provide a job for every man who was willing and able to work. Remember, this was in 1928, fifteen months before the Wall Street collapse, and seven years before Social Security was enacted. He continued with a summary of the problem in American agriculture:

The most urgent economic problem in our nation today is agriculture. It must be solved if we are to bring prosperity and contentment to one-third of our people directly and to all of our people indirectly. We have pledged ourselves to find a solution. There are many causes for failure of agriculture to win its fair share of national prosperity. The after-war deflation not only brought great direct losses to the farmer, but he was often left indebted in inflated dollars to be paid in deflated dollars. Prices are often demoralized through gluts in our markets during the harvest season. Local taxes have been increased to provide the improved roads and schools. The tariff on some products is proving inadequate to protect him from imports from abroad. The increases in transportation rates since the war have greatly affected the price that he receives for his product. Over six million farmers in times of surplus engage in destructive competition with one another in the sale of their product, often depressing prices below those levels that could be maintained.

I think it is fair to say that Hoover’s summary was on target. The American farmer was in trouble and Hoover understood the economic weaknesses that contributed to the problem. He said that American agriculture needed to undergo “reconstruction.” That word was fraught with special meaning for many of the people who earned their living from agriculture. It looked back to the dark days of reconstruction after the Civil War. But something needed to be done, and Hoover had a well-earned reputation as a very smart man who knew how to get things done—at least in the business world. His engineering skills had produced great success for him, and his work in public service also enhanced his aura of competence. He next outlined what he and his party would do if they were elected to power.

Differences of opinion as to both causes and remedy have retarded the completion of a constructive program of relief. It is our plain duty to search the common ground on which we may mobilize the sound forces of agricultural reconstruction. Our platform lays a solid basis upon which we can build. It offers an affirmative program.

An adequate tariff is the foundation of farm relief. Our consumers increase faster than our producers do. The domestic market must be protected. Foreign products raised under lower standards of living are today competing in our home markets. I would use my office and influence to give the farmer the full benefit of our historic tariff policy.

Sound’s familiar doesn’t it? Then he reviewed what already had been accomplished by his party—Republicans had held the office of President for all but twenty of the preceding sixty-eight years. Hoover said that he would be building on a solid foundation.

An outstanding proposal of the party program is the whole-hearted pledge to undertake the reorganization of the marketing system upon sounder and more economical lines. We have already contributed greatly to this purpose by the acts supporting farm cooperatives, the establishment of intermediate credit banks, the regulation of stockyards and public exchanges, and the expansion of the Department of Agriculture. The platform proposes to go much farther. It pledges the creation of a Federal Farm Board of representative farmers to be clothed with authority and resources with which not only to still further aid farmers’ cooperatives and pools and to assist generally in solution of farm problems but especially to build up, with federal finance, farmer-owned and farmer controlled stabilization corporations which will protect the farmer from the depression and demoralization of seasonal gluts and periodical surpluses.

If we take him at his word, Hoover was not reluctant to talk about new and larger government agencies. He was clearly in favor of bigger government, whether or not he would ever admit it. He clearly was in favor of providing money and authority to help American farmers improve their lot. Next he rejected opposition complaints that his proposals would be too expensive. When new programs are proposed, the party out of power always asks the eternal, political question: “Who is going to pay for this program?” Hoover said:

Objection has been made that this program, as laid down by the party platform, may require that several hundred millions of capital be advanced by the Federal Government without obligation upon the individual farmer. With that objection I have little patience. A nation which is spending ninety billions a year can well afford an expenditure of a few hundred millions for a workable program that will give to one-third of its population their fair share of the nation’s prosperity. Nor does this proposal put the government into business except so far as it is called upon to furnish capital with which to build up the farmer to the control of his own destiny.

If we take him at his word, then Hoover was willing to spend money to help the farmers. He was willing to use government power to meddle in agricultural markets. He was willing to create credit banks to provide needed capital. Nothing was wrong with the underlying ideas of his programs, except to say that ever since that time tyranno-capitalists have denounced them—for tyranno-capitalists, helping people in need is bad public policy. In a little over a year, Hoover would begin to accept this guiding principle of tyranno-capitalism.

In the November election of 1928, Hoover easily defeated Democrat Al Smith. But the Wall Street stock market crash occurred in October of 1929, businesses closed, banks failed, unemployment soared, Hoover’s promises of prosperity were not kept, his policies failed, poverty increased, and he was doomed to be a one-term president.

As the economy worsened the people appealed to the national government for help. Hoover was willing to do some things, but his response was far from adequate. Rather than giving direct aid to suffering Americans as he had promised in 1928, he suddenly proposed “volunteerism,” which was his term for a process (really a hope, or a dodge) in which Americans would help one another to weather the storm. And, based on many first-hand accounts I have heard from those who were there, people did help one another, but when they had almost nothing to give, such help did not go very far. More help, government help, was needed. Hoover did not give it. “Volunteerism,” at least his version of it, is the ancestor of tyranno-capitalism’s “trickle-down economics.”

As people lost their jobs, homes, and savings, they needed housing. None was to be found. So, they built shelters out of any materials they could find: scrap lumber, salvaged building stones and bricks, tar paper, sheets of metal siding, even cardboard. Entire shantytowns arose, and they came to be called “Hoovervilles.” Life in these towns was dangerous because adequate sanitation infrastructure for such habitations did not exist.

But Hoover did not relent. He believed that giving money directly to suffering people would soften them, make them less likely to work, and weaken the “rugged individualism” which he believed was the hallmark of the American character. On December 10, 1930 the New York Times published an article with the headline, “President Hits Congress.” Hoover chastised the congressional Democrats for demanding more direct relief for poor Americans. He said that such relief would lead to an increase in taxes, and he added, “Prosperity cannot be restored by raids upon the public treasury.”

By refusing to give direct help to Americans who were destitute, Hoover was condemning them to live out their lives suffering from “the grinding by undernourishment, cold, and ignorance, and fear of old age” that he had promised to protect them from when he accepted his party’s nomination for the office of President. His evolved nature could not be denied. In just a few months after taking office, as his power and then his desperation increased, Herbert Hoover revealed his tyranno-nature. His obliteration of the Bonus Army’s Hooverville, his constant refusal to give direct aid to people in need, and his zealous protection of the public treasury from the public, are all acts against the common good in the name of the law.  This perverted logic was perfectly described by Anatole France, who said:

The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal their bread.

Herbert Hoover punished the American people as if being poor was a crime, and that unjust punishment is still in effect. Tyranni are as tyranni do, and they are still doing it with all their might.

What Hoover failed to understand is that the public treasury belongs to the public—the people—and they are free to do with it whatever they please, whenever they please, however they please. His analysis was based upon his acceptance of the idea that our system of economics is fundamentally sound. He and countless economists over the years have believed that our system of economics is a law of the universe. Such irrationality governed us in 1930 and it still does today—in spite of a mountain of evidence to the contrary. Tyranno-capitalism was in full flower during the administration of Herbert Hoover. The system that he used to do great damage to the lives of millions of Americans is essentially the system that we live under today. We can look on its works, my fellow Americans, and despair—or we can change it.

It is heartbreaking today to see what financial privation does to our children, it is a very great sin. Those government officials who stood by while this great sin was happening should hope that their God is not a just God. And, for me, it is also heartbreaking to think what my parents and grandparents, and others of their generations, had to endure just because our government leaders hated people who were poor. We could have eased the suffering of millions upon millions of Americans and Europeans, and many others, just by accepting and using our unlimited supply of money. It has always existed. As soon as we humans began to engage in commerce we were bound to discover the unlimited supply of money. It has always been there, waiting to be discovered and used for the benefit of humankind.

Whenever I have casually discussed with others the possibility of giving money to poor people, the most common first response is that poor people do not deserve it. But those who hold that unkind, heartless opinion surely forget the causes and effects of the Great Depression and the Dust Bowl. Both of these human-made disasters created millions of new poor people. Many, if not most, of the people I grew up with in my small hometown were children and grandchildren of people who were made poor by the Great Depression. The lives of two generations of Americans, the World War II generation and their parents, were directly damaged by a lack of money, and by today’s standard they would be at fault—they would be judged as undeserving of help. Of course such a charge is unsupported by the facts. The dastardly lie that we have a limited supply of money was hard at work then, particularly in the halls of Congress. This lack of money, the politicians claimed, made it impossible to restart the economy by the direct infusion of an adequate supply of money to those most in need.

My parents, who were part of the World War II generation, were only eleven years old when the stock market crashed, so there is no way they can be blamed for the poverty that struck them and millions of other children. But they, and countless others, were blamed and they grew up in an America that did not give them the resources and opportunities they needed to flourish—the economic lives of those children were cruelly, irrevocably stunted by arrogant politicians who failed to do their duty, and by the majority of economists who gave the politicians a bogus, “scientific” basis to support their harsh moral judgments.

 The Dust Bowl and Tyranno-Capitalism

The Dust Bowl provides us with an excellent model of our current economic predicament. It shows the terrible, shameful consequences of interpreting poverty as proof of moral failing. It shows how the lives of millions of Americans can be destroyed by politicians who cling to economic policies based on the lie, and it is a lie, that we have a limited amount of money. It shows the human tragedy resulting from a rush to make money at the expense of the environment. It shows how the destructive effects of the Dust Bowl could have been mitigated by democrato economic policies.

When Franklin Roosevelt took power on March 4, 1933, three terrible things were happening. The Great Depression had been underway for more than three years, the extreme tyrannus Adolf Hitler was nearing his takeover of the German government, and the Dust Bowl was about to explode in Oklahoma, Texas, and adjacent states. Roosevelt understood that he would need money to deal with the Depression and he understood that the gold standard, by design, severely limited the amount of money the government could issue, which limited the programs that could be implemented to deal with our national problems, and which naturally increased the power of the banks and wealthy individuals who had money to lend. This yellow metal, which had comparatively little intrinsic value, was used to devastate the lives of millions of Americans. The gold standard was a tool of tyranno-capitalism and it created the Great Depression, magnified the effects of the Dust Bowl, and worst of all, enabled the extreme tyrannus Adolf Hitler to exploit the hunger and fear of the German people and seize dictatorial power. All three of these disasters were human-made, and they all grew out of a human-made scarcity of money. From wealthy men losing their fortunes on Wall Street, to families forced from their farms in the Great Plains, to unimaginable horrors in the concentration camps of Nazi-occupied Europe, tyranno-capitalism has much to answer for.

In the 1930’s a lack of water and a lack of money combined to trigger one of the largest internal migrations in American history. Over that period millions[viii] of people left their homes and went elsewhere, many to California—where because of their extreme poverty they were unwelcome. If we pay attention to our own history we can learn something.

In the Dust Bowl states the Great Depression was underway, so money was even more scarce than usual, a prolonged drought had caused crops to fail for several years, repeated plowing of dry soil had led to wind-driven erosion that removed the most productive topsoil and reduced crop yields even when it did rain, many farmers had mortgaged their farms and equipment to the limit, and local bankers had carried overdue notes about as long as they could. These problems finally reached unsustainable levels. The banks demanded payment and the farmers were forced to auction their farms and equipment to the highest bidders. Millions were forced off their land and became known as “Okies” no matter which state they were from. Our national government tried to help by buying livestock at better than market prices, and it instituted long term programs to develop and implement better methods of soil management. In addition, special programs for aiding those who had been hit the hardest were implemented, and large numbers of trees were planted as bulwarks against the high winds of the plains. But these efforts were too little, too late. For a time, the drought triumphed.

But, over time, the drought broke, new farmers used better soil management methods, and technology provided improvements. Crops rarely failed, credit was available, consumers had the money to buy the crops, cash flow was positive. Over the years, farmers who were still in the region were able to do better. In the 1960’s I visited the farm of a friend in the Texas Panhandle. He and his father had raised wheat, cotton, and sorghum there for many years and they had been consistently successful. On one occasion my friend and I made a tour of his irrigation system to check the pumps and the flow. He had several pumps that took water from the Ogallala aquifer and transferred it throughout his fields. My friend’s farm was powered by electricity which was provided through the local cooperative, which itself was a product of a New Deal program started by FDR during the Great Depression. This was a very different world from that of the Dust Bowl days. My friend was definitely a farmer, and he definitely had to work hard, but he had the resources he needed to be successful—he had ready access to power, water, and money.

But in the fifty years since I first visited my friend’s farm, depletion of the Ogallala aquifer has accelerated. It is estimated that the present draining of the aquifer is three times the rate that it was in the 20th century. Unfortunately the recharging process for the aquifer is very slow. There is little rainfall in the Panhandle and wind-aided evaporation reduces that amount significantly before it can find its way into the underground supply. Some areas of the Ogallala have been pumped virtually dry and will take hundreds of years to replenish. And, of course, global warming and another prolonged drought are jeopardizing water supplies all over Texas—and Texas is not alone. The states that depend on the Colorado River for agricultural uses, such as California, are already being forced to accept reduced allotments due to a severe depletion of river flows.  If the current trends continue we will have even greater population dislocations than we saw during the Dust Bowl days.  It will be déjà vu on steroids.

This little review of history shows how farmers need money and water in order to operate their farms successfully. The simple lesson is that we are all farmers. We each have our own lives and families to grow and we need the resources to do it. Money is necessary to build and sustain a life worth living, just as water is necessary to make a successful wheat farm. Successful farms contribute to the common good, and so will the successful lives of our citizens. Our lives must be nourished in order to succeed. This nourishment can be of many forms, and it must be supplied when needed and in the amounts needed. We have the money we need—it has been lying around our Treasury Department for more than eighty years, but we do not have the system we need to distribute it where and when it is needed. The tyranni who now control our money supply do not want us to have it. They have many explanations for denying our children what they need, but at bottom there is only one reason for this despicable behavior—our tyranno-rulers who deny the people access to the money supply (which is, after all, an inexhaustible national resource), do so because they think that we do not deserve it. They say things like, “The Lord helps those who help themselves, you must earn your bread by the sweat of your brow, and there is no such thing as a free lunch,” and they call us names such as, “freeloaders, takers, and deadbeats.” These tyranni will never change. So long as they are in power, our people will suffer. But we will soon replace these tyranni, and our new economic system of democrato-capitalism will provide nourishment when and where it is needed so that our citizens can live long lives that are worth living.

Between the stock market crash in October of 1929 and FDR’s inauguration in March of 1933, 41 months had elapsed and 11,000 banks had closed. That’s an average of 63 banks every week. They closed because they could not muster the capital to stay open. They were bankrupt. They were formed under the model of tyranno-capitalism. They were formed mostly by men who had managed to get hold of some capital and were trying to earn a profit from the labor and dreams of others. The bankers had some sort of formula that they followed which included an expected rate of loan failures, a way to properly value collateral assets, an expected cash-in value on those assets in the event of a foreclosure, a schedule of bank operating expenses needed to keep the doors open, and a trust that the crops would not fail, at least not totally for years, and that crop prices would not falter—and all governed by an interest rate that would produce a profit. It was a complicated business transaction between an honest farmer and a tyranno-banker. But that model was doomed to fail—in fact, tyranno-capitalism is always doomed to fail. The reason is simple. When profits depend on being able to predict the future there will always be downturns. The model may work for a while if banks go into an area where business is on the upswing, but that is more luck than skill and does not last forever. Banking is a temporary business. Yes, there are banks that have been successful for many years, but their longevity is due to two factors: our national government has supported the banks in order to keep them in business, and many banks have changed their model, they are no longer making investments with their own money—they have ceased to be banks. They are no longer trying to predict the future. They have become service providers and consumer finance companies, and they often drift into the exploitation of their customers. They are not building a society, they are mining for gold in a society that somebody else built—they are living off the sweat of someone else’s brow.

The really big banks, like those on Wall Street, practice full-bore tyranno-capitalism. The executives do whatever it takes to “earn” their bonuses. Their business is all about the bottom line; it is never about building a society. They can’t pick winners either, but they have learned how to exploit investors, the stock market, the government, and some have even laundered money for drug dealers on a large scale. They are masters, not of the universe as they claim, but of putting their thumb on the scales. They eye the masses and the government as wild cheetahs eye a herd of impala—they are looking for the easy kill.

In the Dust Bowl the banks were undercapitalized, and so were the farmers—they could not ride out the drought, resulting in shuttered banks, ghost farms, ghost towns, desolate prairies, barren futures—and trucks loaded with meager possessions, shattered dreams, and forlorn people, on the way to nowhere.

The farmers of the Dust Bowl days borrowed money from banks that followed the tyranno-capitalism model. In this case the farmers were part of the supply side and they borrowed from the tyranno-capitalist bank in order to acquire the land, equipment, seed, and supplies in order to plant crops. These banks loaned money to the farmers in return for interest and equity. Unfortunately, the drought and poor soil management practices reduced the farmers’ production and the depression emptied the pockets of the consuming public thereby destroying demand and the prices that the farmers could get for their lowered production. The tyranno-capitalist banks needed profits in the near term, they were not in it for the long haul. They failed—they did not have enough money to stay in business, and because of the weaknesses of the Hoover economy our national government had neither the money nor the will to ride to the rescue.

But if democrato-capitalism had been in operation back in those dry old days, things would have been very different. Our national government would have required the banks to adopt democrato polices in exchange for keeping them afloat. Under these new policies, these people-friendly policies, the banks would have made loans to the farmers but they would have been interest-free. They would also have repayment terms that could be adjusted as circumstances required. When production declined due to the prolonged drought the democrato-banks would have reduced or suspended the loan repayments. When demand dropped because the consumers lost their jobs, the loan repayments would again have been lowered. In this way, the farmer would have been able to keep his farm and continue to produce as much as weather and poor soil would have permitted. If he chose to move on he would have been able to do so with support from the democrato-capitalist bank until he found a new situation—there is no doubt that this would have been a mighty thing.

On the demand side, the national government would have directly deposited money into the checking accounts of the consuming public (including the farmers) so that they could buy the things they needed. In this way the economy would continue to function at high levels. This money would not have been a loan. It would be treated as income by the public as if it had been a regular paycheck. There would be no need to kick people off their farms or out of their homes and force them onto the street—no one would ever go hungry.

The interest of the national government would be to keep the economy going while the conditions that caused the problems in the first place could be corrected or eliminated. In the case of the Oklahoma farmers, they could stay on their farms and plant trees to reduce erosion, change soil management practices, and otherwise find ways to keep going. There can be no doubt that such practices would have made all the difference in the world. The Dust Bowl soil problems would still have been at work, but the people involved would have been protected, and eventually they would have seen their farms turn from dusty brown to healthy green. By investing in farms and all sorts of other economic entities before trouble arises, our democrato-capitalist system will be a primary force in building and sustaining a better America wherein people can live long lives worth living.

Tyranno-capitalism is a great, enduring failure. It is a curse. If it were a success, then the people would be fully employed, wages would be sufficient for all to enjoy a comfortable standard of living, young children would be well-fed and well-educated, all those who want to go to college would be able to afford it, sweatshops would not exist anywhere in the world, there would be two new cars in every garage, home ownership would be available to all who wanted it, health care would be of high quality and affordable, everyone’s teeth would be white, straight, and free of disease, everyone would have a nice computer with an operating system that was reliable and easy to use, our national infrastructure would be well-maintained, all Americans would have the very same civil rights, we would have lowered greenhouse gases in the atmosphere to a safe and sustainable level, our rivers and streams would be safe, clear and clean, our food supply would be safe, affordable, healthy, and tasty, government tax revenues would be sufficient to eliminate excessive deficits—you get the idea. But none of these elements of the common good are true today even though we live in the most advanced capitalist system in the history of the world. Capitalism has failed, and it has failed badly.

But from the point of view of the tyranno-wealthy, tyranno-capitalism is actually a huge success. Tyranno-capitalists are wealthy beyond imagination. They have only six unfulfilled desires: to be comfortably insulated from contact with the people, to pay no taxes, to be richer, to age without wrinkles, to have a full head of hair, and to live forever. So tyranno-capitalism has worked for the tyranno-capitalists, and only the tyranno-capitalists—just as any reasonable person would expect.

So we now know why things are such a mess, and this gives rise to a new problem. If tyranno-capitalism is a failure, what do we do about it? The answer, according to the men who control our government, is to punish the people for the failure of the tyranno-capitalist system. That answer is obviously wrong, but it has a familiar ring. Remember, James Madison told us that republican governments have many problems, and the best way to solve them is to implement more republican government. Remember, the doctors who attended George Washington at the end would bleed him and if he weakened they would bleed him again. That kind of crazy, irrational thinking is what we are dealing with right now. Our leaders and the leaders of the wealthy European countries are saying that even though tyranno-capitalism has failed, the cure is more tyranno-capitalism. We should lower taxes on the rich and cut social services for the poor (who once suffered from “poverty,” but now suffer from “austerity”) so as to give more money to the tyranno-capitalists. In order to make up for the lost government revenue the people, as Little Jimmy Dickens once sang, have been told to “take an old cold tater and wait.” And wait they have—and the tater is older, colder, and in crumbs.[ix] The mind boggles—the heart aches.

The Hypocrisy of Tyranno-Capitalism

Tyranni are nothing if not hypocrites. While they constantly sing the virtues of the “free market” and the “invisible hand,” they are nevertheless in favor of government regulation in situations where they can write the rules. Through their control of the government they have written tax laws to ease their burden—not only for themselves personally, but also for their enterprises. It is amazing that some of our largest companies, which make billions of dollars in a given year, pay no taxes but receive government subsidies.  They have lived off free (to them) infrastructure development, and abatements of local property taxes all over the nation. Their tendency to dump their toxic waste and pollution to be cleaned up at the expense of the people is a routine part of doing business, and this process has been given an obfuscatory name by economists: “externalities.”

To be true to the self-evident truth that “all men are created equal,” all of the branches and departments of our government should treat all men equally. Even though James Madison expressed his agreement with this nicety he was also doubtful that it would come to pass—he even predicted just how it would fail. He predicted that the “apportionment of taxes,” would be decided in favor of the powerful. He wrote:

[There is] no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice. Every shilling with which they overburden the inferior number, is a shilling saved to their own pockets.[x]

But as we know, his understanding of economic classes was not perfect. His idea of the “predominant party” was the mass of ordinary people, the majority of American citizens in other words. He feared that they would exercise their majority power and take the gold and jewels of the rich. But to borrow a phrase from John Quincy Adams, Madison’s fear revealed a failing “at the bottom of his soul.” His fear of the people was wholly unjustified, but because he had the power to do it, he designed a government to protect the gold and jewels of his wealthy elite class from the lower classes. By giving the control of the government to the wealthy elite minority, he enabled them to “overburden” the majority—the people. Congress, largely populated by sycophants of the tyranno-capitalists, has betrayed the people. The “rules of justice” have been trampled.

Another betrayal of the people occurred in response to the crash at the end of George W. Bush’s term in office. The government, President and Congress alike, saw to it that trillions of dollars and credit were showered upon the failed Wall Street banks, while General Motors was saved from bankruptcy, and while doing too little for the people—the stimulus package that managed to get through Congress was pitifully inadequate. The rise in unemployment as a result of the Bush Crash has produced a 77% increase in the number of Americans enrolled in the Supplemental Nutrition Assistance Program (SNAP)[xi]. According to democrato-economist Paul Krugman, “almost two-thirds of SNAP beneficiaries are children, the elderly or the disabled, and most of the rest are adults with children.” In the same column, Krugman reports:

Adjusted for inflation, the income of the top 1 percent rose 31 percent from 2009 to 2012, but the real income of the bottom 40 percent actually fell 6 percent.[xii]

Where is Madison when we really need him? “The rules of justice,” indeed! Clearly the tyranno-capitalists through their control of the national government are working against the common good. It is impossible to believe that the majority of ordinary Americans would allow such a failure of government if they had it within their power. But our Madisonian republic prevents them from taking care of those who are most in need.

 Muzzled Watchdogs

The national government has the power to regulate the major functions of our system of economics. It has created several institutions to exercise this power, ostensibly to protect the people. The Department of Justice has powers to investigate and prosecute lawbreakers. The Securities Exchange Commission (SEC) is an independent regulatory agency. The Commodities Futures Trading Commission is another—in fact at one time it had the responsibility to regulate some of the complex derivatives that were the cause of the Bush Crash. There are dozens of Inspectors General for a variety of government agencies and departments that have the power, supposedly, to keep everything on the straight and narrow path. The idea is that these watchdogs and regulators will objectively, ferociously, protect the people from the predations of greedy tyranni. But this idea has never worked well at all, and in recent years it has failed completely. The Masters of the Universe, the financial banksters, the speculators, the market manipulators, the bribers, and the fraudsters have captured the agencies who are supposed to protect ordinary citizens. The watchdogs are now muzzled. To date, there have been almost no adverse effects for those who crashed our economy, and there will be none in the future. New regulations are just for show, they will never be used to prosecute the lawbreakers of the future—and if prosecutions are ever pursued nobody will go to jail.

 The Federal Reserve System

For example, let’s take a look at the Federal Reserve System. It has been given very broad powers and responsibilities by Congress[xiii]:

  • Conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
  • Supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
  • Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
  • Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system

The Federal Reserve, for many years now, has been a colossal failure in regulating the banking and financial system. At the end of the George W. Bush administration, and the start of the Great Recession, the financial system was far from sound and it was definitely unsafe. The Fed has failed to contain systemic risk. It did pour huge amounts of money into the failed banks on Wall Street, thereby protecting the paychecks of the tyranno-capitalists who controlled them, but it did nothing for the millions of Americans whose lives were damaged. Over time the financial condition of the Wall Street banks improved, thanks to the generosity of the Fed, until they are now stronger than ever. The banks were treated much better than the people. Both the banks and the people had “toxic assets,” but only the banks were rescued by the Fed. Chairman Ben Bernanke, after years of such largesse, hinted that he might slow things down a bit. Here is how Business Insider described what happened (emphasis added):

The consensus on Wall Street was that the FOMC [the Fed’s policy making board] would elect to taper its monthly bond buys to $75 billion from the current $85 billion pace. When the FOMC released a statement at 2 p.m., saying it isn’t ready to taper because it is awaiting “more evidence that progress [in economic growth] will be sustained before adjusting the pace of its purchases,” stocks soared, bonds soared, gold soared, and the dollar tanked as traders recalibrated their bets toward continued easy money from the Fed.[xiv]

 Former Fed Official Andrew Huszar

Lest you think that I am alone in my reaction to Chairman Bernanke’s unwarranted support of Wall Street at the expense of the people, I want to call your attention to an article by Andrew Huszar, a former Fed official who was in charge of the initial phase of this program. His article was published in The Wall Street Journal, the nation’s strongest supporter of stacking the deck in favor of the rich and powerful.[xv]

Huszar begins his article with these words:

I can only say: I’m sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed’s first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I’ve come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time.

Huszar tells us how it all started:

I was working on Wall Street in spring 2009 when I got an unexpected phone call. Would I come back to work on the Fed’s trading floor? The job: managing what was at the heart of QE’s bond-buying spree—a wild attempt to buy $1.25 trillion in mortgage bonds in 12 months. Incredibly, the Fed was calling to ask if I wanted to quarterback the largest economic stimulus in U.S. history.

After about a year, Huszar evaluated the effectiveness of the QE program and reached the following conclusions:

Trading for the first round of QE ended on March 31, 2010. The final results confirmed that, while there had been only trivial relief for Main Street, the U.S. central bank’s bond purchases had been an absolute coup for Wall Street. The banks hadn’t just benefited from the lower cost of making loans. They’d also enjoyed huge capital gains on the rising values of their securities holdings and fat commissions from brokering most of the Fed’s QE transactions. Wall Street had experienced its most profitable year ever in 2009, and 2010 was starting off in much the same way.

Huszar, to put it mildly, was very disturbed by these results:

You’d think the Fed would have finally stopped to question the wisdom of QE. Think again. Only a few months later—after a 14% drop in the U.S. stock market and renewed weakening in the banking sector—the Fed announced a new round of bond buying: QE2. Germany’s finance minister, Wolfgang Schäuble, immediately called the decision “clueless.”

That was when I realized the Fed had lost any remaining ability to think independently from Wall Street. Demoralized, I returned to the private sector.

Where are we today? The Fed keeps buying roughly $85 billion in bonds a month, chronically delaying so much as a minor QE taper. Over five years, its bond purchases have come to more than $4 trillion. Amazingly, in a supposedly free-market nation, QE has become the largest financial-markets intervention by any government in world history.

Let the good times roll! The wealthy bankers and traders of Wall Street were back in party mode, while the rest of us were outside parking their cars. If the Fed had distributed the same trillions of dollars to the people, our population would have received an average of $15,000 per person—a family of four would have received $60,000, and most of that money would have been spent back into the economy. The mind boggles. It is clear to me the Federal Reserve is not the friend of the people. The Bernanke debacle was preceded by the destructive actions of another Fed Chairman.

 Alan Greenspan

Former Fed chairman Alan Greenspan was responsible for lax regulation of the banks by his agency and for fighting off the warnings that came to light from time to time while the disaster was building. Greenspan, who served as the Chairman of the Federal Reserve from 1997 to 2006, is a devout believer in the mystic power of the “invisible hand.” As you will see, Greenspan and James Madison had something in common—they each believed in a “theoretic” system that did not work as they promised. Madison believed in his “theoretic” republic and Greenspan believes in the “theoretic” “invisible hand.”

In his position Greenspan had a powerful influence upon national economic policies. He was a strong advocate of tyranno-capitalism and “free markets.” He worshipped the “invisible hand.” If you should think that “worship” is too strong a word then read the following words from Greenspan (emphasis added):

Today’s competitive markets, whether we seek to recognise it or not, are driven by an international version of Adam Smith’s invisible hand that is unredeemably opaque. With notably rare exceptions the global invisible hand has created relatively stable exchange rates, interest rates, prices, and wage rates.[xvi]

I take Greenspan’s phrase, “unredeemably opaque,” to mean that he cannot explain or understand how the “invisible hand” works. It sounds to me that he is worshipping some powerful, almost godly, force. Greenspan’s belief in the “invisible hand” was so certain, so pure, and so irredeemably stupid that he believed that it was not necessary to regulate the financial industry to protect consumers against fraudulent practices. Forbes Magazine, one of the strongest supporters of tyranno-capitalism and “free markets,” recently published an article by Eamonn Fingleton, which concluded by saying:

It is fair to say that Greenspan emerges as probably the biggest—and most dangerous—fool in American financial history.[xvii]

While the article focuses on the mistakes made by Greenspan and identifies him as one of the chief offenders in promoting a regulation-free financial system, there is plenty of blame to go around—worshippers of tyranno-capitalism and “free markets” can be found throughout our government and institutions. In his Forbes article Fingleton refers us to an essay by former bank regulator Bill Black. In the essay, entitled How Elite Economic Hucksters Drive America’s Biggest Fraud Epidemics, Black writes (emphasis added):

At the heart of Greenspan’s failure lies an ethical void in the brand of economics that has dominated American universities and policy circles for the last several decades, a brand known as “free market fundamentalism” or the “neoclassical school.” (I call it “theoclassical economics” for its quasi-religious belief system.) Mainstream economists who follow this school assert a deeply flawed and controversial concept known as the “efficient market hypothesis,” which holds that financial markets magically regulate themselves (they automatically “self-correct”) and are thus immune to fraud. When an economist starts believing in that kind of fallacy, he is bound to become blind to reality.[xviii]

Greenspan, along with others mentioned by Black, was greatly responsible for the financial debacle that came to be called the “Great Recession.” Appearing before a congressional committee, Greenspan was grilled about his economic philosophy by Henry A. Waxman. Here is a key part of their exchange:[xix]

 Waxman: Do you feel that your ideology pushed you to make decisions that you wish you had not made?

Greenspan: Yes, I’ve found a flaw. I don’t know how significant or permanent it is. But I’ve been very distressed by that fact.

This is about as close to an admission of error that Greenspan is likely ever to make. But he is still spouting nonsense. I doubt that he found a flaw in the “invisible hand,” because he had already proclaimed that he did not understand the “invisible hand” because, he said, it is “unredeemably opaque.” If he was right about this, then he would not be able to find a flaw in something his mind’s eye could not comprehend. What he should have said is that he had realized that the “invisible hand” does not work. This would be easy to see because our economy has suffered because of the “invisible hand.” It is just plain silly that he went on to say that he doesn’t know “how significant or permanent” the problem is because he could never be able to make such a judgment about a process that is “unredeemably opaque.” But such inconsistent, nonsensical remarks were a hallmark of Greenspan’s tenure as chairman of the Fed. I have watched him on several occasions over the years as he spewed obfuscatory nonsense to the members of Congress while they all nodded in what they hoped was a sagacious and knowing manner.

(It is very tempting to wonder just what Greenspan meant when he said that he was “very distressed.” I wonder how his distress is manifested. I wonder if his distress is comparable to the gut-wrenching fear of those who lost their job, or their home, or their savings, or…)

Madison and Greenspan are both tyranni. Each of them advocated for policies that worked against the common good. Madison did not want ordinary Americans to have a voice about the important decisions facing the nation, and Greenspan felt no need to protect ordinary Americans from frauds perpetrated by the financial elites. Both men were elitists. Remember, Madison warned us that “Men of factious tempers, of local prejudices, or of sinister designs, may” obtain office, “and “then betray the interests, of the people.”[xx] So, the Federal Reserve System, like other government systems, is only as good as the men who control it.

The Federal Reserve System is a product of Congress, and Congress has the power to pass other laws that work against the people. In the case of the Great Recession, Congress had long before passed a repeal of the Glass-Steagall Act, which had successfully kept the Wall Street banks under control for many years. Glass-Steagall was passed in 1933 during the Great Depression, and its purpose was to separate institutions that gambled on the stock market from institutions that handled the deposits of the people. Tyranno-capitalists wanted to get their hands on the people’s deposits and they tried to do so year after year. Finally, collusion between Phil Gramm and Bill Clinton accomplished the goal, and Glass-Steagall disappeared in 1999. We can see clearly the consequences; unfortunately millions of us have suffered because of it. In the aftermath of the Great Recession, the leaders of the two banking committees of the Congress blustered that they would fix the problem. But they have done very little, and there is no hope that the key features of the Glass-Steagall Act will be reinstated.

Then there is the matter of unemployment. The Fed has a duty to provide conditions favorable to “maximum employment, stable prices, and moderate long-term interest rates.” It has paid attention to stable prices (controlling inflation) and to low interest rates, but there is no evidence that it has paid appropriate and sufficient attention to unemployment. While the tyranno-capitalists rebounded quickly from the Bush Crash, thanks to the Fed, the rest of us have not made much progress at all over the past five years and counting.

Federal District Judge Jed S. Rakove

An analytical and well-informed view of the way our watchdogs have been muzzled was provided in an article written by Jed S. Rakove, a United States District Judge for the Southern District of New York. The article was published in the January 9, 2014 issue of The New York Review of Books, and it is called, “The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?” Rakove considers the possible reasons that no prosecutions have been carried out. He says:

One possibility, already mentioned, is that no fraud was committed. This possibility should not be discounted. Every case is different, and I, for one, have no opinion about whether criminal fraud was committed in any given instance.

But the stated opinion of those government entities asked to examine the financial crisis overall is not that no fraud was committed. Quite the contrary. For example, the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior.

As the commission found, the signs of fraud were everywhere to be seen, with the number of reports of suspected mortgage fraud rising twenty-fold between 1996 and 2005 and then doubling again in the next four years. As early as 2004, FBI Assistant Director Chris Swecker was publicly warning of the “pervasive problem” of mortgage fraud, driven by the voracious demand for mortgage-backed securities. Similar warnings, many from within the financial community, were disregarded, not because they were viewed as inaccurate, but because, as one high-level banker put it, “A decision was made that ‘We’re going to have to hold our nose and start buying the stated product if we want to stay in business.’”

Without giving further examples, the point is that, in the aftermath of the financial crisis, the prevailing view of many government officials (as well as others) was that the crisis was in material respects the product of intentional fraud. In a nutshell, the fraud, they argued, was a simple one. Subprime mortgages, i.e., mortgages of dubious creditworthiness, increasingly provided the chief collateral for highly leveraged securities that were marketed as AAA, i.e., securities of very low risk. How could this transformation of a sow’s ear into a silk purse be accomplished unless someone dissembled along the way?

While officials of the Department of Justice have been more circumspect in describing the roots of the financial crisis than have the various commissions of inquiry and other government agencies, I have seen nothing to indicate their disagreement with the widespread conclusion that fraud at every level permeated the bubble in mortgage-backed securities.

Rakove is clear. There is ample evidence that fraud was committed. It was widespread and many officials took note of it. Rakove discusses at length why no prosecutions have taken place, and the possibilities he raises are disheartening. He identifies three principal excuses given by prosecutors for not pursuing high-level executives. First, one well-known prosecutor says that it is difficult to prove that a high-level executive knew about the wrong-doing in his company. The second excuse is that the people who were sold the worthless derivatives were sophisticated buyers so they are at fault, not the seller. The third excuse is that prosecutions would harm the economy. Rakove rejects these excuses and explains why. Follow this endnote for the link to Rakove’s article:[xxi] But for our purposes here, we need only consider that our system of tyranno-capitalism perpetrated fraud in order to take financial advantage of the people, and while the innocent suffered, the guilty went free.

The United States Supreme Court

The Supreme Court also has a voice in the establishment of government economic policies. The current Court, led by Chief Justice John Roberts, is the most pro-business since the end of World War II. Adam Liptak, a reporter for the New York Times, published an article about the Court on May 4, 2013. His article was given the title: “Corporations find a Friend in the Supreme Court.” Liptak provided a broad overview of the opinions of several Court watchers. Here are some of the people and organizations whom he quoted in his article, along with a little of their comments:

The Minnesota Law Review conducted a study that ranked the 36 justices who served on the court over those 65 years [1946-2011] by the proportion of their pro-business votes; all five of the current court’s more conservative members were in the top 10. But the study’s most striking finding was that the two justices most likely to vote in favor of business interests since 1946 are the most recent conservative additions to the court, Chief Justice Roberts and Justice Samuel A. Alito Jr., both appointed by President George W. Bush.

Arthur R. Miller, a law professor at New York University said: “The Supreme Court has altered federal procedure in dramatic ways, one step at a time, to favor the business community,” he said, by, among other things, “increased grants of summary judgment, tightening scientific evidence, rejecting class actions, heightening the pleading barrier and wholesale diversions into arbitration.”

Brian T. Fitzpatrick, a law professor at Vanderbilt University, commented on the AT&T Mobility case which prevented customers from joining together to sue the phone service provider. Fitzpatrick said: “The decision basically lets companies escape class actions, so long as they do so by means of arbitration agreements. This is a game-changer for businesses. It’s one of the most important and favorable cases for businesses in a very long time.”

Erwin Chemerinsky, the dean of the law school at the University of California, Irvine, said: “The Roberts court is the most pro-business court since the mid-1930s. I think this helps understand it far more than traditional liberal and conservative labels.”

 Arthur Levitt on Alan Greenspan and Brooksley Born

 On October 20, 2009 Public Television aired an episode of “Frontline” called “The Warning.”[xxii] It is about the efforts of Brooksley Born, who was the head of the Commodity Futures Trading Commission during the administration of Bill Clinton. The regulation of some forms of derivatives fell under her organization, and when she took office she became concerned that something was wrong. Her efforts were thwarted almost immediately by Robert Rubin, the Secretary of the Treasury, Larry Summers, head of the Council of Economic Advisers, and Alan Greenspan, Chairman of the Federal Reserve System. These three powerful men prevented regulation of these derivatives and the variety and sales of these worthless products continued to grow until the fraud collapsed near the end of the administration of George W. Bush. The entire episode is encapsulated by one interview in which Arthur Levitt, then Chairman of the Securities Exchange Commission, talks about Alan Greenspan and Brooksley Born.[xxiii] Here are his remarks about Greenspan:

Alan is a good friend, and I knew him before I came to Washington and knew him well when he was there. We played golf and tennis together; we saw a good deal of one another.

He was probably the most highly respected and most revered person in the city at that time. He was more than an economist. He is a very broad-gauged individual with large numbers of friends and a tremendous following in Congress, where people hung on every word—most of which they didn’t understand, but because it was Alan, they thought it was great.

This kind of “buddy” relationship among high-level officials is extremely dangerous and it is far from professional. But it is a way of life in Washington. You scratch my back, and I’ll scratch yours. Here are Levitt’s remarks about Brooksley Born:

[I] didn’t know Brooksley Born. I was told about Brooksley Born. I was told that she was irascible, difficult, stubborn, unreasonable. I’ve come to know her as one of the most capable, dedicated, intelligent and committed public servants that I have ever come to know. I wish I knew her better in Washington, and I wish my view of her was more rounded by personal exposure. …

In my life I’ve had so many occasions of finding my impressions were incorrect and revising them, depending upon the circumstances, depending upon what stage of life I happen to be or what other factors were bearing on it. You’ve asked me about these people, and I’ve come to know all of them reasonably well. I’ve got to say to you that I have just huge affection and admiration and trust in Brooksley Born.

So, as a result of character assassination between powerful men in a male-dominated world, a woman was “put in her place” and the nation suffered. This was fraudulent behavior. Born said that these financial instruments needed to be regulated in the interests of the people, but the buddy system disagreed thereby deliberately deceiving the people into thinking that all was well. The motive for this trickery was that the leading men were all personally interested in protecting the bankers who were selling these instruments.

Brooksley Born

The Frontline episode mentioned above is about the efforts of Brooksley Born to regulate the financial instruments called “derivatives.” She thought they were very dangerous and she was right. However everyone else said she was wrong and they had the power to shut her up. They used that power and ultimately persuaded Congress to pass a law prohibiting her agency from regulating derivatives. The fix was in, and it was led by Alan Greenspan, Larry Summers, and Robert Rubin. Born resigned shortly after Congress acted. In the Frontline episode mentioned above Born was asked about a lunch meeting with Greenspan that took place shortly after she went to work as head of the CFTC. She said that she would not talk about it on camera, but some of her aides did, and I was able to find an interview she gave to the Stanford University Alumni Magazine. Born was a graduate of Stanford Law School and was the first female editor of its Law Review. The lunch took place in Greenspan’s private dining room at the headquarters of the Federal Reserve. Here is some of what was said:[xxiv]

Greenspan: Well Brooksley, I guess you and I will never agree about fraud.

Born: What is there not to agree on?

Greenspan: Well, you probably will always believe there should be laws against fraud, and I don’t think there is any need for a law against fraud.

Greenspan, according to Born, believed that the market would take care of itself. She added, “That underscored to me how absolutist Alan was in his opposition to any regulation.”

The careless, unprofessional, cavalier, elitist attitude of Arthur Levitt, the aggressive, misogynist actions of Robert Rubin and Larry Summers, and the hostile, uncooperative attitude and misguided beliefs of Alan Greenspan combined to force the muzzling and ultimately the resignation of Born—the only person in that small group who was acting honestly and forthrightly in service of the common good. It is no coincidence that the miscreants were men and the good public servant was a woman, and it is no accident that she, and we, the people, lost the argument. It is an old, old, sorry story, and it is still going on.

 The Bogus “Science” of Economics

Economics is not a science. It is not even a close call. It is one of the GREEB institutions, which are all ideology-based. Science, technology, engineering, and mathematics (STEM) are all fact-based institutions and have done more to build civilization than any other institutions—and it is no accident that these institutions have been and remain dominated by democrati—our great march of progress was not made just to satisfy the authoritarian fantasies of tyranni as they pursued wealth and power, but rather it was led by democrati who sought to know the real, objective facts about the real world, not just in their own eyes, but also in the objective eyes of their peers. In other words, facts, proof, objectivity, and truth matter most in science, technology, engineering, and mathematics. Truth is discovered, not decreed. Education could have, should have, been included in this powerful group, but over the last sixty years it has steadily, increasingly, fallen victim to politicians, tyranno-capitalists, and religious zealots.

Government, religion, and business, more often than not, have been dominated by tyranni and have worked against the common good. Economics has contributed a net loss to the common good, and it too has been dominated by tyranni who use it to push their selfish agendas. But on the other hand, in this age of widespread science-denial it is good to see that some economists want to be a part of science—if not as real scientists then at least as intellectuals who follow scientific methods and disciplines as far as possible. I think that we need much more of that attitude here in America. But those who embrace the scientific process must understand that they might face disagreement and criticism from others—that is, after all, the way that science works. All those who follow the scientific method must accept that their ideas are subject to dispute, correction, or even rejection, by others.

On October 20, 2013, Raj Chetty, a professor of economics at Harvard University, published an op-ed essay in The New York Times with the title, “Yes, Economics Is a Science.” The next afternoon, Paul Krugman, in the same newspaper, responded to Chetty’s article with a blog post entitled, “Maybe Economics Is a Science, But Many Economists Are Not Scientists.” Chetty complains that people do not give economists credit for using scientific methods in analyzing data and running mathematical models. Krugman agrees, but goes on to say that even if the scientific character of some aspects of economics is acknowledged within the academy, politicians and some non-scientific economists will still create false hypotheses in pursuit of their selfish goals. Krugman was right to hedge his bets.

The two short essays are worth reading, but they actually miss the most important point—what Chetty and other economists who claim to be scientists fail to do is to compare “apples to apples,” by which I mean the question of science versus economics would best be answered by looking at the framework and the processes of each field of study. Science, technology, engineering, and mathematics study the immutable laws of the universe by relying on the scientific method of observing, experimenting, hypothesizing, and disproving. Most public economists (those who have influence on public policy) study the mutable laws of human-made systems by relying on ideology, electoral politics, generalization of personal experiences, and superficial ideas of cause and effect. The output of the scientific method can be relied on as a basis for building bridges, developing medicines, finding the fundamental building blocks of our universe and the like. All of this contributes to the common good. But the “laws” developed by economic theory are so weak and so dependent on so many irregular, discontinuous variables that they should not be relied on as a basis for government policy. Precisely because of this fundamental weakness, they can easily be used by demagogues to promote policies that work against the common good. In short, science produces the truth, but economics produces falsehoods.

Let me repeat—the essential, and vast, difference between science and economics is that the former studies the reliable universe, and the latter studies an unreliable, human-made system whose functions change radically and swiftly depending on which political party is in control. But unfortunately, economists such as Chetty accept our federal system and our system of economics as if they were systems of immutable laws in the same way that the laws of the universe are immutable. They claim to be conducting an effort, a scientific effort they say, to understand those laws and then use what they learn for the benefit of humankind.

But their search is hopeless. Our federal system and our system of economics are human-made and if we can’t understand them, and if they do not produce the results we want, then we can change them or replace them with something better. Instead, we the people suffer under nonsensical economic policies determined, not by the force of ideas, but by the force of personalities—or as some might say: by the force of personality disorders. Tyranni are more aggressive than democrati and because there is no way to decide economic policy questions based on facts and the common good, tyranni dominate the debate.  Nothing could better demonstrate this error than the idea that our government must borrow money in order to have money and that it must tax the people in order to repay the money it borrows. This irrational idea, this multi-trillion-dollar con, imposes a serious limitation on our economy, and on the people. Unfortunately, the great majority of economists accept it as an immutable law just like the law of gravity—but it is like gravity in only one respect—it is pulling us down.

The economic policy debate takes place within a failed system of economics that favors the privileged capitalists at the expense (literally) of the struggling working classes. The debate should be over which system of economics will benefit the people the most, over which system of economics will best serve generations of Americans yet to come, and over which system of economics will enable our citizens to have an equal chance at economic success upon which to build long lives worth living.

So if the practitioners of economics want to work for the common good, then they should throw out our current system of economics and design a new one. It wouldn’t be hard to do better than we are doing today. In the meantime, the practitioners of economics should take the good analytical work that they sometimes do and return it to the field of mathematics where they got it, and go into another line of work. Or, they could abandon their fantasy of being a science and strive to be a useful system of data analysis that works for the common good. In any case, the “laws” of our current system of economics are whatever some credentialed economist says they are, and even when his laws are proven false beyond doubt he suffers no penalty. An error, a distortion, even a deliberate lie, can produce public policies that work against the common good—and the errors, the distortions, the lies, just keep on coming.

An example of this non-scientific handiwork was accidentally discovered by a University of Massachusetts (UMass) graduate student in the early part of 2013.[xxv] He was assigned a classroom task of replicating the results reported by two well-known economists, Carmen M. Reinhart and Kenneth S. Rogoff (hereafter known as R-R), in an academic paper they published in May of 2010. Their paper appeared in the Papers and Proceedings of the American Economic Review. The paper discussed the hypothetical economic consequences that might occur as the ratio of a nation’s debt to its gross domestic product gets larger and larger. The analysis relied on data from several nations and covered a period of more than one hundred years. Reinhart and Rogoff concluded that when the national debt reaches 90% of the annual gross domestic product (GDP) then the overall output of the economy will decline sharply, leading to severe economic problems. Tyranno-politicians jumped on this conclusion as proof that our national debt was at a dangerous level and severe austerity measures were needed to reduce it. But in their gleeful avarice, they leaped too soon.

As it happened, the UMass graduate student was unable to duplicate the R-R results. After some back and forth communications between UMass and R-R, the student was given access to the original data base and the programming code used by R-R. He found three problems. One was a very simple error in the programming code, which, unfortunately for the authors, altered their conclusion significantly when corrected. A second problem was that some of the data were inexplicably given weight that tended to favor the final conclusion reached by the authors. Their sets of national economic statistics for the period covered in their study were not consistent, so they had to be adjusted in order to make meaningful comparisons. These adjustments were questionable to put it generously. The third problem involved the exclusion of some elements of some of the national data sets. These exclusions also tended to favor the conclusion reached by the authors, but when the excluded data sets were actually included the authors’ result shrank to insignificance. Paul Krugman, Nobel prize-winning economist who was a graduate student at Massachusetts Institute of Technology along with both Reinhart and Rogoff, criticized the sloppiness of the R-R paper and they responded in a letter that Fareed Zakaria quoted to Krugman who was a guest on his (Zakaria’s) program on CNN (emphasis added):

Zakaria: They [R-R] say: “You’ve attacked us in very personal terms, virtually non-stop.  You’ve doubled down.  Your characterization of our work is selective and shallow. It’s deeply misleading.”

Krugman: It’s very unpleasant, because Ken is a magnificent economist.  He’s done fabulous work over the years. And then this one paper, which was thrown out hastily, unfortunately, is the one that has had the greatest impact on policy debate…The fact of the matter is this one result—claimed result—which is that growth falls off a cliff when debt exceeds 90 percent of GDP, that’s what the world picked up. And that result is false. That result is clearly not true. There is a mild negative correlation between debt and growth, but that cliff doesn’t exist. It never existed in the data. It certainly isn’t anything anyone should believe now.

That paper of theirs did a lot of damage by giving people who didn’t want stimulus, who didn’t want any kind of expansionary policy, a way to scare their opponents, to say if we don’t do it my way, we’ll go over the 90 percent line and terrible things will happen.

And my problem now with Carmen and Ken is that while they’ve said a lot of things that indicate more flexibility, they have never, to my knowledge, said clearly, OK, there is no cliff at 90 percent. And we really need that from them. For them to say, look, you know, we think debt is dangerous, we think it’s a problem. But 90 percent, that was an artifact of some things in our original calculation that don’t appear in subsequent work.[xxvi]

 I happily confess that I am not an economist but I am a mathematician who taught math and who used math in the conduct of my computer systems work for thirty years, which included the requirement to be a competent, professional programmer. Based on three decades of successful experience in the skills where these errors occurred, I can say that the errors were simply unacceptable and if the authors had produced this work in a class of mine I would have given them an “F.” If they had performed such work in my business I would have been embarrassed and would have apologized immediately to my customers. I do not know if I would have fired them, but I certainly would have considered it. Reinhart and Rogoff have publicly acknowledged their coding error (what else could they do?), but they have vehemently rejected the criticisms leveled at their other two problems that have been widely excoriated by economists in a variety of public forums. If you want to read more about this amazing chapter in our economic saga, then just search the Internet for “Reinhart Rogoff error” and you will find plenty of detailed analysis and comment—and the overwhelming majority of it rejects the work of the two economists.

Unfortunately, this hubbub has changed nothing. The policy makers in our national government and the two major, competing schools of economic thought (fresh water and salt water) have continued with their squabbling as if nothing had happened. But it did happen, and austerity was reinforced in those countries where it was already punishing the lower classes and adopted by more policy makers here and in Europe. Millions of ordinary human beings have suffered greatly and unnecessarily because of the Reinhart and Rogoff fiasco. The fact that a graduate student, in a class exercise, stumbled on this faulty work that has played a major, harmful role in the lives of millions, is simply stunning, that is if one assumes that economists subject their scholarly papers to peer review, and if one assumes that such peer review is performed earnestly and professionally in keeping with scientific principles and standards. So, no matter whether or not economics is a science, it is not a useful science to consult in making important policy decisions. Economists should be excluded from any role in policy making and they should be replaced by actuaries and data analysts. As a science wannabe, economics is not ready for prime time. If economics is a science, then it is a barren science that has offered little of value since the ideas of John Maynard Keynes. But even if it is a nascent science it is at the stage of searching for its Galileo—perhaps even for its Archimedes.

I have tried to understand economics. I have taken a class, I have read a few books, including Paul Krugman’s 940-page textbook, and it just does not make sense to me. Max Tegmark is from Denmark, and like many of us he made a stab at picking a career when he graduated from high school. Here is what he wrote (emphasis added):[xxvii]

When the time came to apply for college, I decided against physics and other technical fields, and ended up at the Stockholm School of Economics, focusing on environmental issues. I wanted to do my small part to make our planet a better place, and felt that the main problem wasn’t that we lacked technical solutions, but that we didn’t properly use the technology we had. I figured that the best way to affect people’s behavior was through their wallets, and was intrigued by the idea of creating economic incentives that aligned individual egoism with the common good.

Alas, I soon grew disillusioned, concluding that economics was largely a form of intellectual prostitution where you got rewarded for saying what the powers that be wanted to hear. Whatever a politician wanted to do, he or she could find an economist as advisor who had argued for doing precisely that. Franklin D. Roosevelt wanted to increase government spending, so he listened to John Maynard Keynes, whereas Ronald Reagan wanted to decrease government spending, so he listened to Milton Friedman.

Tegmark decided to become a physicist and is author or coauthor of more than two hundred technical papers, twelve of which have been cited more than five hundred times. He holds a Ph.D. from the University of California, Berkeley, and is a physics professor at MIT. I applaud Tegmark’s wish to make “our planet a better place,” and I agree with his description of economics as being “a form of intellectual prostitution.” I wish I had thought of it.

Another scientist, more famous than Tegmark, was Albert Einstein. He shared Tegmark’s wish to make the world a better place, and he believed that the economic scourge of capitalism produced more evil than good. He was inclined toward socialism which is a dirty word in America today, but based on my reading of his views I think he was more inclined toward any system that worked for the common good. In any case, he wondered if the field of economics would be useful in designing a government of the future. In 1949 he wrote:[xxviii]

Let us first consider the question from the point of view of scientific knowledge. It might appear that there are no essential methodological differences between astronomy and economics: scientists in both fields attempt to discover laws of general acceptability for a circumscribed group of phenomena in order to make the interconnection of these phenomena as clearly understandable as possible. But in reality such methodological differences do exist. The discovery of general laws in the field of economics is made difficult by the circumstance that observed economic phenomena are often affected by many factors which are very hard to evaluate separately. Economic science in its present state can throw little light on the socialist society of the future.

 There is nothing more to say—economics is not a science.

The Oxymoron of “Creative Destruction”

For all of my life I have heard people say that we should run our government like a family. Economists have heard it too, and they generally respond with the same weak argument. Here is what Paul Krugman had to say about it:

I’ve spent a lot of time trying to knock down the bad analogy between governments and individuals, and the line that the government should act like an individual family or business, and cut back when times are tough. The key point is realizing interdependence: your spending is my income, my spending is your income, and if we all try to slash spending at the same time the result is a depression. Somebody needs to step up and spend when others won’t—and the government can and should be that somebody.[xxix]

Krugman, who is a very smart man, is an expert in his field. He is sixty-two and he is part of the Generalists[xxx] cohort. When he was in the Experts cohort, he gained considerable expertise—in fact, he was a leading member of that cohort. But now, as a Generalist, he is well into applying and testing his economic expertise in the real world. That activity, over time, is what turns Generalists into Sages. He is not yet part of the Sages cohort, and will not reach that status for more than a decade. By that time, many of his views about economic theory and its application will have changed—I hope for the better. He is after all, an economist, and economists spend the bulk of their careers living in a theoretic world, a world that has very little connection to ordinary family life, a world where economists have all the answers and where we, the people, (as the prevailing attitude of nearly all economists clearly indicates) are not able to understand or correctly apply those countless, ambiguous, conflicting, sophomoric answers. But if he begins to spend “a lot of time” listening to, and thinking about, families and the economy he will learn something—he will learn that running government like a family means that money should be used to build a better life for all family members. In a family, those who control the money supply should use it for the good of everyone. I think he will learn that our economy should grow from the bottom up, not the top down. I think he will learn that democrato-capitalism is the way to go. In fact, if you and I get busy, we may be able to implement democrato-capitalism before Krugman reaches Sages cohort status.

But for now, Krugman’s remarks show the fundamental difference between systems designers and economists. In my working life, I assumed, based on experience, that my customer knew more about her business than I did, and if a customer asked for some system capability I tried to give it to her, and if I couldn’t or shouldn’t I would be able to give her a real reason for it. In America today our citizens are crying out for a system that gives them enough money to meet the needs of their families—they are crying out for a system that will enable them to be secure and build long lives worth living for themselves and their loved ones. Yet there is no answer from the economists of the world. Krugman does seem to be taking a tiny step, really a nod, probably just a feint, in the right direction when he says, “Somebody needs to step up and spend when others won’t—and the government can and should be that somebody.” But apparently he feels no duty to act on his inclination; he gives us no real path to change—now, or ever.

Let’s take a closer look at Krugman’s axiom of interdependence: “your spending is my income, and my spending is your income.” He is correct as far as he goes, but there is more to the story. We know from cruel personal experience that if you lose your job you must spend less, which means that someone else has less income, but more importantly it means that your family suffers. There is no guarantee that large corporations, who earn billions of dollars, will spend their profits back into the economy. In fact many corporations have ignored Krugman’s axiom, and ratholed overseas a total of more than two trillion dollars in profits to avoid taxes. They have sucked money out of our economy thereby making the pie smaller for the rest of us. They have taken the money they obtained from the spending of ordinary citizens and turned it into profits for themselves rather than spending it to create income for others. And we know from personal experience that our system’s perverse incentives are such that an employer can decide to abruptly cut off the incomes of thousands of citizens and suffer no penalty for having done it. This is not a relationship of interdependence. It is a relationship of the powerful and the powerless.

What Krugman and the entire economics profession should realize is that interdependence does not work. What they should realize is that the government should be the primary spender in our system. All spending should originate with the government. For example, Krugman, as quoted above, says that the government should start spending when everybody else stops spending. Nonsense. Why should we wait until everybody stops spending before the government starts spending? Why shouldn’t the government spend to stimulate the economy all the time? After all, it has plenty of money, and we have plenty of genuine needs for it.

There is an oxymoronic name for the unwillingness of tyranno-capitalists, and the government they control, to stimulate the economy. Economists call it “creative destruction” and it does irreversible damage to the lives of ordinary citizens. It first appeared in 1942 in a book written by Joseph Schumpeter: Capitalism, Socialism, and Democracy. In his book, Schumpeter said (emphasis added):

The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.

This term has been discussed and analyzed many times over many years, and the conclusions are always the same: capitalism is like evolution by natural selection, it creates and it destroys. But capitalism is not a natural process like evolution by natural selection—it is human-made, and we can change it, or at the very least we can control its harmful effects. Michael Cox and Richard Alm summarized the problems caused by “creative destruction” in an article published in The Concise Encyclopedia of Economics.[xxxi] They set the context of their brief discussion by telling us that creative destruction “has become the centerpiece for modern thinking on how economies evolve.” Then they quickly reveal the bitter truth about capitalism (emphasis added):

Schumpeter and the economists who adopt his succinct summary of the free market’s ceaseless churning echo capitalism’s critics in acknowledging that lost jobs, ruined companies, and vanishing industries are inherent parts of the growth system. The saving grace comes from recognizing the good that comes from the turmoil. Over time, societies that allow creative destruction to operate grow more productive and richer; their citizens see the benefits of new and better products, shorter work weeks, better jobs, and higher living standards.

Herein lies the paradox of progress. A society cannot reap the rewards of creative destruction without accepting that some individuals might be worse off, not just in the short term, but perhaps forever. At the same time, attempts to soften the harsher aspects of creative destruction by trying to preserve jobs or protect industries will lead to stagnation and decline, short-circuiting the march of progress. Schumpeter’s enduring term reminds us that capitalism’s pain and gain are inextricably linked. The process of creating new industries does not go forward without sweeping away the preexisting order.[xxxii]

Under capitalism, according to Schumpeter, Cox, Alm, and thousands of other tyranno-economists and tyranno-politicians, society must be willing to sacrifice the lives of citizens who happen to be working in a business that fails—no matter the cause. Such sacrifice is the price that must be paid for economic progress. We know this to be true because we have witnessed it year after year in America and all over the world. We ordinary citizens recognize it as unemployment, loss of savings, loss of homes, less for our children, reduced pensions, loss of health care and other benefits, unhappiness, lowered expectations, and all the rest. But Cox and Alm felt a need to drive their point home. They closed with this:

Over the past two centuries, the Western nations that embraced capitalism have achieved tremendous economic progress as new industries supplanted old ones. Even with the higher living standards, however, the constant flux of free enterprise is not always welcome. The disruption of lost jobs and shuttered businesses is immediate, while the payoff from creative destruction comes mainly in the long term. As a result, societies will always be tempted to block the process of creative destruction, implementing policies to resist economic change.

Attempts to save jobs almost always backfire. Instead of going out of business, inefficient producers hang on, at a high cost to consumers or taxpayers. The tinkering short-circuits market signals that shift resources to emerging industries. It saps the incentives to introduce new products and production methods, leading to stagnation, layoffs, and bankruptcies. The ironic point of Schumpeter’s iconic phrase is this: societies that try to reap the gain of creative destruction without the pain find themselves enduring the pain but not the gain.

So, rather than apply their collective expertise to eliminate the pain while keeping the gain, the professional economists of the world simply throw up their hands and say, “Take it or leave it.” They admit that they cannot solve this destruction of human lives. I doubt that any of them, with the exception of John Maynard Keynes, have ever tried.[xxxiii]

How Tyranno-Capitalism Distributes Money

In Federalist 30, Alexander Hamilton discussed the general power of taxation, and he correctly described the proper and indispensable role of money in the operations of the state and in the lives of the people. He did not realize that he was prescribing a process of money management that the ancient Athenians had followed. They used an unexpected, rich silver strike to invest in a large shipbuilding project that was for the benefit of all Athenians, they gave money to the poor to compensate them for income lost when they went to the Assembly, and they paid citizens who were chosen by lot for long-term administrative duties. Hamilton hated the Athenians, but he unconsciously endorsed their ideas. He said (emphasis added):

Money is, with propriety, considered as the vital principle of the body politic; as that which sustains its life and motion, and enables it to perform its most essential functions. A complete power, therefore, to procure a regular and adequate supply of it, as far as the resources of the community will permit, may be regarded as an indispensable ingredient in every constitution. From a deficiency in this particular, one of two evils must ensue; either the people must be subjected to continual plunder, as a substitute for a more eligible mode of supplying the public wants, or the government must sink into a fatal atrophy, and, in a short course of time, perish.

As it turns out, things are even worse than Hamilton feared—our Madisonian republic has failed to provide “a regular and adequate supply” of money, the people have been “subjected to continual plunder,” the “public wants” have not been satisfied, and our government has fallen into “a fatal atrophy” which prevents us from maintaining and improving our infrastructure, and which blocks the prudent, aggressive, large-scale, time-sensitive actions needed to deal with the adverse effects of global warming.

Tyranno-capitalism created hyperinflation in the Weimar Republic in the aftermath of World War I, then it created the Great Depression and the Dust Bowl, then World War II, then the collapse of the savings and loan industry, then the recent Great Recession, and for the last thirty years has exacerbated global warming. The immense economic harm done to American citizens by our economic system is surpassed only by the harm flowing from the perennial oppression of not-whites, not-males, not-Christians, not-heterosexuals, not-natives, the disabled, and the not-well-to-do that our national and state governments have practiced under the guise of states’ rights. The Federal Reserve is a sham, and the officers of the system should be ashamed of themselves for accepting money under false pretenses, and I grow weary cataloging the sins perpetrated by those who practice the bogus “science” of economics. The fact that “creative destruction” is accepted as an essential part of tyranno-capitalism is appalling. It is obviously invalid and it is obviously easily corrected—that is, if one wants to correct it.

Last, but not least, the tyranni who control our government and our economy have created an artificial shortage of money in order to increase their personal power at the expense of the people. Tyranno-capitalism’s approach to money management is to keep the people from ever having “a regular and adequate supply.” It uses five basic techniques to keep the people in a permanent state of financial privation:

  1. First, it pays very low wages in order to maximize the profits of the tyranno-capitalists.
  2. Second, it loans money to the people at a high price so they can temporarily make ends meet.
  3. Third, if the people fail to repay their loans on time the tyranno-capitalists can seize their assets and often force them out of their homes or off their farms.
  4. Fourth, it does not pay the full cost of doing business but leaves it to the people to pay through higher taxes, an unsafe workplace, a hostile and unhealthy environment, and fewer government services while the tyranno-capitalists get whatever they want from the government and pay relatively low taxes, if they pay any at all.
  5. Fifth, when economic downturns occur, such as the Great Depression or the Great Recession, the tyranni who control our government do all they can to deny or minimize financial assistance to the people. They restrict the duration of unemployment insurance, they forbid giving money directly to the people, and they cut back on food stamps and other such assistance. They punish the people for the failure of tyranno-capitalism.

This evil, irrational, phony shortage of money has been manipulated in ways that burden and confuse ordinary citizens while giving the plutocrats immunity from their machinations—and it supports tyranno-capitalism’s overwhelmingly lopsided distribution of money in favor of the plutocrats while forcing many millions of us into perpetual debt. This cruel, destructive, arbitrary, cockeyed distribution of money can be seen in the following table:

 

Table 4[xxxiv]
Average Household Income Under

Tyranno-Capitalism

Row (1)

Percent

of

Population

(2)

Households

(000)

(3)

People

(000)

 

(4)

Average

Income

($$$)

1 4.8 5,913 15,078 200,000
2 1.9  2,288 5,834 188,957
3 3.4 4,175 10,646 163,130
4 4.7 5,806 14,805 139,084
5 7.7 9,460 24,123 113,772
6 11.9 14,687 37,452 88,800
7 17.6 21,659 55,230 64,264
8 24.0 29,434 75,057 39,503
9 24.0 29,531 75,304 16,261
  All Households: 122,952 313,530 69,285
  Total Household Income in Trillions: 8.2T

 

As you can see in row 9, more than 29 million households containing nearly a quarter of our population, have an average annual income of $16,261. Rows 8 and 9, the two groups with the lowest incomes, contain more than 58 million households, encompass nearly half of our population, and have a combined average income of $27,863. The average number of people living in each of those 58 million households is 2.55 which means that the average per capita income of more than 150 million Americans is $10,926. Just place yourself in the position of earning less than $11,000 per year. There is little hope that you will ever have the chance to go to college or to enjoy the many wonderful things that our technologies provide—there is little hope that your lot in life will ever improve—the lack of money will be the dominating factor of your life.

Tyranno-capitalism is a failure and it is destroying the lives of most of our citizens. The “invisible hand” is a huge, lucrative scam that would make a snake-oil salesman envious. It has never worked for the common good and it never will. It is something that belongs in a Monty Python comedy sketch. But instead our economists and our political leaders hold more allegiance to it than they do to America. Money talks.

The economic errors that I have discussed in this chapter are clear, unmistakable, defining, undeniable characteristics of tyranno-capitalism. We will replace this abominable system. It is not worthy of the American people. The formula for success is simple and certain—we will adapt the superior idea of Athenian democracy that money should be used for the benefit of all the people, and we will adapt Alexander Hamilton’s prescription that the government should provide a “regular and adequate supply” of money to the people and their institutions—in effect, all spending will originate with our new government, faction-free democracy. As you no doubt expect by now, we will replace tyranno-capitalism with democrato-capitalism.

[i] Alfred, Lord Tennyson, In Memoriam, Verse LVI, line 15

 

[ii] Adam Smith, An Inquiry Into the Nature and the Causes of the Wealth of Nations, 1776, Book 4, Chapter II, paragraph 9

[iii] Fleischacker, Samuel (2009-01-10). On Adam Smith’s “Wealth of Nations”: A Philosophical Companion (Kindle Locations 3301-3307). Princeton University Press. Kindle Edition.

[iv] Smith, Adam (2013-08-01). The Wealth of Nations (Illustrated) (Kindle Locations 4002-4018).  Kindle Edition.

[v] Smith, Adam (2013-08-01). The Wealth of Nations (Illustrated) (Kindle Locations 2025-2026).  Kindle Edition.

There are many examples of price-fixing sometimes called “trusts.” One of the most famous examples, and one of the best documented, was the case of Archer Daniels Midland, a corporation which engaged in fixing the price of lysine which is an additive to animal feed. ADM conspired with two Japanese and two Korean companies. The thievery took place in the middle 1990’s and you can read all about it by searching the Internet for “ADM lysine price-fixing scandal.” Historically this has been one of the most important ways that tyranno-capitalism picks winners.

[vi] Remember, the British Petroleum well that spewed millions of gallons of crude oil into the Gulf of Mexico was capped by means of a very difficult procedure. There is no guarantee that the well will never spew again. It might start tomorrow.

[vii] Herbert Hoover was not the only one who refused to give the veterans their bonuses. Franklin Roosevelt later offered the veterans highway construction jobs, which some accepted, but not the majority. In 1936, a Democrat-controlled Congress passed a bill that authorized payment of the bonuses. Roosevelt vetoed it, but he was quickly overridden by Congress and the bonuses were paid—but only after four more years of suffering by the veterans and their families.

[viii] http://www.loc.gov/teachers/classroommaterials/primarysourcesets/dust-bowl-migration/pdf/teacher_guide.pdf

[ix]  James Cecil Dickens, aka Little Jimmy Dickens, sang many popular novelty songs. In 1949 he sang, “Take an old cold tater and wait.”  My favorite line from this song explains why the people are today unhappy with our national government. It goes: “Now taters never did taste good with chicken on the plate.” It was true then and it is true now.

[x] James Madison, Federalist 10

[xi] http://www.fns.usda.gov/pd/SNAPsummary.htm

[xii] http://www.nytimes.com/2013/09/23/opinion/krugman-free-to-be-hungry.html?ref=opinion

[xiii] http://www.federalreserve.gov/pf/pdf/pf_complete.pdf   p. 1

[xiv] Read more: http://www.businessinsider.com/bernanke-felt-the-need-to-fix-a-mistake-today-2013-9#ixzz2fk997R2G

[xv] Andrew Huszar, Confessions of a Quantitative Easer, Wall Street Journal, November 11, 2013,

http://online.wsj.com/news/articles/SB10001424052702303763804579183680751473884

[xvi] Alan Greenspan as quoted by Paul Krugman at http://krugman.blogs.nytimes.com/2013/07/17/the-prophecies-of-maestrodamus/

[xvii] Eamonn Fingleton, Forbes Magazine, http://www.forbes.com/sites/eamonnfingleton/2013/06/06/alan-greenspans-epic-incompetence-another-shoe-drops/

[xviii] Read more of Black’s article at http://www.nakedcapitalism.com/2013/06/bill-black-how-elite-economic-hucksters-drive-americas-biggest-fraud-epidemics.html#y0hxQkGc5gKUxOwu.99

[xix] Read more at: http://www.nytimes.com/2008/10/24/business/economy/24panel.html

[xx] James Madison, Federalist 10

[xxi] Jed S. Rakove, “The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?” The New York Review of Books, http://www.nybooks.com/articles/archives/2014/jan/09/financial-crisis-why-no-executive-prosecutions/

[xxii] “The Warning,” Public Television episode of “Frontline,” at http://video.pbs.org/video/1302794657/

[xxiii] Arthur Levitt’s remarks about Alan Greenspan and Brooksley Born, made in “The Warning” episode of Public Television’s “Frontline” series: http://www.pbs.org/wgbh/pages/frontline/warning/interviews/levitt.html`

[xxiv] March/April issue of Stanford Alumni Magazine, “Prophet and Loss” by Rick Schmitt, http://alumni.stanford.edu/get/page/magazine/article/?article_id=30885

[xxv] http://nymag.com/daily/intelligencer/2013/04/grad-student-who-shook-global-austerity-movement.html#  or:

http://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up

[xxvi] Fareed Zakaria, GPS, Cable News Network (CNN), June 1, 2013

[xxvii] Tegmark, Max (2014-01-07). Our Mathematical Universe: My Quest for the Ultimate Nature of Reality (Kindle Locations 220-228). Knopf Doubleday Publishing Group. Kindle Edition.

[xxviii] Albert Einstein, Why Socialism? Monthly Review, May 1949, http://monthlyreview.org/2009/05/01/why-socialism

[xxix] Paul Krugman, New York Times, March 14, 2013

[xxx] In a later chapter I will explain how our population should be divided into four cohorts: Guardians who are people under age 26, Experts who are people age 26-50, Generalists who are people age 51-75, and Sages who are people age 76 and up. I have finally made it to Sage status, and it is clear that life begins at age 76.

[xxxi] When they wrote the article Cox was senior vice president and chief economist at the Federal Reserve Bank of Dallas, and Alm was an economics writer at the same institution.

http://www.econlib.org/library/Enc/CreativeDestruction.html

[xxxii] Schumpeter’s recognition that the essential truth of capitalism is that it grinds up people was not a new discovery. Karl Marx recognized it earlier. He called it “immiseration” which means “to make miserable; to impoverish.” In fact, Marx identified two varieties of this capitalist plague: in absolute immiseration, the living standards of the working class decline absolutely. In relative immiseration, the wealth of the capitalists grows faster than the real wages of the working class. I suppose that “creative destruction” sounds somewhat softer and kinder than immiseration, but the misery created under either term is the same.

[xxxiii] John Maynard Keynes was an English economist who warned the victorious Allies after World War I that the harsh settlement they forced on Germany would lead to World War II. He also invented macroeconomics, and tried to persuade governments to spend money to encourage consumer activity during severe downturns. This latter idea was partially adopted by Franklin Roosevelt’s programs during the Great Depression. Because Keynes’s stimulus approach was based on “deficit spending” it was fiercely opposed by tyranno-economists and still is to this day.

[xxxiv] Data extracted from U.S. Census Bureau, Current Population Survey, 2014 Annual Population and Economic Supplement—Table HINC-02, Age of Householder-Households by Total Money Income 2013.

 

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Charles Beard and Federalist 10

When I first read historian Charles A. Beard’s excellent book, An Economic Interpretation of the American Constitution, it was forty-six years old and now more than a century after its publication it still stands like a rock. I first read it while I was taking an elective course on the Constitution at Baylor University. It, along with some of the Federalist essays, was included in a list of suggested additional readings.  In his book, Beard quoted from some Federalist essays as did the instructor of my Constitution class, a law professor. And in my work on this book I developed a new appreciation for these essays. All three of us, historian, law professor, and student, were especially interested in Federalist 10, James Madison’s important and brief (3,000 word) essay. Our mutual interest sprang from our inquiring minds—we wanted to know what the Framers did and why they did it.

Beard said that he based his book on the political science of James Madison. He said that Madison summarized his personal political ideas with utmost precision in one passage in Federalist 10. Beard included an abridged version of that passage in his book, but I am including it in full. Here it is in James Madison’s own words:

As long as the reason of man continues fallible, and he is at liberty to exercise it, different opinions will be formed. As long as the connection subsists between his reason and his self-love, his opinions and his passions will have a reciprocal influence on each other; and the former will be objects to which the latter will attach themselves. The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately results; and from the influence of these on the sentiments and views of the respective proprietors, ensues a division of the society into different interests and parties.

The latent causes of faction are thus sown in the nature of man; and we see them everywhere brought into different degrees of activity, according to the different circumstances of civil society. A zeal for different opinions concerning religion, concerning government, and many other points, as well of speculation as of practice; an attachment to different leaders ambitiously contending for pre-eminence and power; or to persons of other descriptions whose fortunes have been interesting to the human passions, have, in turn, divided mankind into parties, inflamed them with mutual animosity, and rendered them much more disposed to vex and oppress each other than to co-operate for their common good. So strong is this propensity of mankind to fall into mutual animosities, that where no substantial occasion presents itself, the most frivolous and fanciful distinctions have been sufficient to kindle their unfriendly passions and excite their most violent conflicts. But the most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation, and involves the spirit of party and faction in the necessary and ordinary operations of the government.

Here is what Beard said about Madison’s political theory:

Here we have a masterly statement of the theory of economic determinism in politics.  Different degrees and kinds of property inevitably exist in modern society; party doctrines and “principles” originate in the sentiments and views which the possession of various kinds of property creates in the minds of the possessors; class and group divisions based on property lie at the basis of modern government; and politics and constitutional law are inevitably a reflex of these contending interests.  Those who are inclined to repudiate the hypothesis of economic determinism as a European importation must, therefore, revise their views, on learning that one of the earliest, and certainly one of the clearest, statements of it came from a profound student of politics who sat in the Convention that framed our fundamental law.[i]

Beard was very clear. He said that Madison and the other Framers designed the Constitution to protect and possibly improve their personal economic interests. And Madison himself, in the quotation above, said men in general have a variety of economic interests and the “principal task of modern legislation” is to regulate these “various and interfering interests.” I can only add that this regulatory task goes beyond legislation and includes the executive and judicial branches as well. In short, our lives, to a great degree, are consumed in the getting, the spending, and the keeping of money, and the government that the Framers designed plays a major role in these activities. Beard believed that our government favors the upper classes over the lower. I agree.

Beard was very thorough in his analysis. He begins by discussing the three methods of historical interpretation of the Constitution—the first is that divine powers guided the Founding Fathers; the second is that they were carrying on an Anglo-Saxon tradition, and the third rejects interpretation altogether and simply recites facts. The first two obviously have no merit, and the third is of no use. He described the third method of interpretation this way:

Such historical writing, however, bears somewhat the same relation to scientific history which systematic botany bears to ecology; that is, it classifies and orders phenomena, but does not explain their proximate or remote causes and relations.

Beard’s early-twentieth-century English is less difficult than that of the Framers, but he does use some words that are not commonly used today. One of the most important of these is “personalty.” It is defined as property that is not real estate, not “realty.” We might call it personal property today, but it does include bonds, cash deposits, and the like. It is important to Beard’s discussion because many of the Framers had considerable sums in personalty.

In the second chapter he talks about the different groups of Americans who had economic interests that could be affected by changes in law, and therefore could be affected by the new Constitution. These groups are:

The Disenfranchised: “the slaves, the indented servants, the mass of men who could not qualify for voting under the property tests imposed by the state constitutions and laws, and women, disenfranchised and subjected to the discriminations of the common law.  These groups were, therefore, not represented in the Convention which drafted the Constitution, except under the theory that representation has no relation to voting.”

Real Property Holders: small farmers, who were widespread, landed proprietors who were the manorial lords of the Hudson valley region, and the slaveholders of the South.

Personal Property Holders: people who held cash, securities, income from manufacturing and shipping, and speculators who held land in the West.

Beard’s basic idea is that these groups all had a serious economic interest in the details of the new Constitution. In the third chapter he asserts that all of these groups were already adversely affected by the government in force in 1787 when the Constitution was written. Therefore, he says, they would naturally hope that things would go better under the new government. In fact, it seems to me that it would be perfectly natural for any citizen who had a hand in designing the new government to want to see his interests protected and possibly improved.

In the fourth chapter Beard explains that the men who became delegates to the constitutional convention were chosen by the state legislatures. This fact, coupled with the fact that there were property requirements for voting (and only males could vote), meant that the greater part of the population would be excluded from a chance to send a representative to the convention. This exclusion is a theme that runs throughout the thinking of the wealthy elite classes of the time, and is an important part of our republic. In short, the government at that time was only for a limited class of men.

In the fifth chapter, Beard lists the economic interests of fifty-three of the delegates to the constitutional convention. He then reorganizes the list of names to show which of these delegates shared economic interests. In other words he was pointing out where economic voting blocs might arise.

In the sixth chapter he shows how specific elements of the Constitution would be of economic interest to the various delegates. For example, he reminds us of the portions of the Constitution that protected slavery in the states where it already existed. This protection certainly diminished any uncertainty that the slaveholder might have had with respect to his greatest asset, his slaves.

In the seventh chapter, he lists the political inclinations of more than forty of the convention delegates. And he drew an interesting conclusion, to wit: the authors of the Federalist essays, Alexander Hamilton, John Jay, and James Madison, collectively represented the political philosophies of the delegates. Some of those delegates, such as James Wilson, were very democratic and wanted the people to have a say in the new government. Roger Sherman, on the other hand, said that the people should have as little to do as possible with the new government.

In the eighth chapter, he discusses the process of ratification. Even though the constitutional convention was called by Congress acting under the Articles of Confederation, the ratification process was different from that prescribed for amending the Articles. As one might expect there were unhappy citizens in almost every state. But the new Constitution was ultimately ratified.

In the ninth chapter, Beard looks closely at the vote on the Constitution. He makes the point that the people did not vote on the document, and therefore it is not accurate to say that “we the people” ordained the Constitution. Rather the document was drafted by a wealthy, carefully selected group of leaders from the various states, and the people were on the outside looking in. The people were excluded from having any meaningful voice on individual portions of the Constitution; the whole thing was done by one up or down vote.

In the tenth chapter, he traces how various economic interests voted on the Constitution. His conclusions are as you might expect. Those citizens who stood to gain the most from the new government worked the hardest for its ratification. Those who were opposed derived their antipathy from the fact that their economic interests were not protected or improved. In short, the vote fell along economic lines. Those who got an economic advantage voted for it, the others voted against. This might be fine if all of the people had been allowed to participate in the design of the Constitution and had been allowed to vote “yes” or “no” on its ratification.

In the eleventh chapter, Beard summarizes the discussion held in the various states in reaction to the ratification. And, in closing, he draws the following overall conclusions. Here is what he said:

  • At the close of this long and arid survey—partaking of the nature of catalogue—it seems worthwhile to bring together the important conclusions for political science which the data presented appear to warrant.

  • The movement for the Constitution of the United States was originated and carried through principally by four groups of personalty interests which had been adversely affected under the Articles of Confederation: money, public securities, manufactures, and trade and shipping.

  • The first firm steps toward the formation of the Constitution were taken by a small and active group of men immediately interested through their personal possessions in the outcome of their labours.

  • No popular vote was taken directly or indirectly on the proposition to call the Convention which drafted the Constitution.

  • A large propertyless mass was, under the prevailing suffrage qualifications, excluded at the outset from participation (through representatives) in the work of framing the Constitution.

  • The members of the Philadelphia Convention which drafted the Constitution were, with a few exceptions, immediately, directly, and personally interested in, and derived economic advantages from, the establishment of the new system.

  • The Constitution was essentially an economic document based upon the concept that the fundamental private rights of property are anterior to [come before] government and morally beyond the reach of popular [democratic] majorities.

  • The major portion of the members of the Convention is on record as recognizing the claim of property to a special and defensive position in the Constitution.

  • In the ratification, of the Constitution, about three-fourths of the adult males failed to vote on the question, having abstained from the elections at which delegates to the state conventions were chosen, either on account of their indifference or their disfranchisement by property qualifications.

  • The Constitution was ratified by a vote of probably not more than one-sixth of the adult males. It is questionable whether a majority of the voters participating in the elections for the state conventions in New York, Massachusetts, New Hampshire, Virginia, and South Carolina, actually approved the ratification of the Constitution.

  • The leaders who supported the Constitution in the ratifying conventions represented the same economic groups as the members of the Philadelphia Convention; and in a large number of instances they were also directly and personally interested in the outcome of their efforts.

  • In the ratification, it became manifest that the line of cleavage for and against the Constitution was between substantial personalty interests on the one hand and the small farming and debtor interests on the other.

  • The Constitution was not created by “the whole people” as the jurists have said; neither was it created by “the states” as Southern nullifiers long contended; but it was the work of a consolidated group whose interests knew no state boundaries and were truly national in their scope.

I find nothing to disagree with. Charles Beard was right—the Constitution was designed to protect and improve the economic interests of the Framers and others of their class. Many historians agreed with Beard, and for a while, his views were ascendant. But myths, when they are widely held, and even though they are false, nevertheless are often stronger than truth, and with the help of time and a few historians the myth finally prevailed. Henry Steele Commager was one of those historians, and he did not agree with Beard’s analysis. In December of 1958, he published an essay in American Heritage magazine entitled “The Constitution: Was It an Economic Document?” Like other critics, Commager did not challenge Beard’s data or most of his analysis. He said:

The correctness of Beard’s analysis of the origins and backgrounds of the membership of the Convention, of the arguments in the Convention, and of the methods of assuring ratification, need not be debated. But these considerations are in a sense, irrelevant and immaterial. For though they are designed to illuminate the document itself, in fact they illuminate only the processes of its manufacture.

So, Commager, unable to puncture the thorough scholarship of Beard, looked for another way to defeat his thesis. He declared that Beard’s work was merely about a sideshow, not really about the main event of the constitutional convention. He dismissed the political philosophies of the delegates as well as their economic interests as “immaterial,” and he gave no weight to the uncontested fact that the bulk of America’s citizens had no representation at the convention or at the ratification proceedings. Commager was slipping into myth. The Framers were not saints, for as Madison said in Federalist 51, “If men were angels no government would be necessary.” Not only did the Framers think a new government was necessary they were in a rush to put it in place. And because they were merely human it is safe to assume that they would take into account their own economic interests. It is impossible to believe that the delegates would create a government that would destroy their holdings and their futures. It is easy to believe that they thought very carefully about their personal economic welfare. Commager then tried to frame the question in the following way:

Here are two fundamental challenges to the Beard interpretation: first the Constitution is primarily a document in federalism; and second, the Constitution does not in fact confess or display the controlling influence of those who held that “the fundamental private rights of property are anterior to government and morally beyond the reach of popular majorities.

These two points are distinctions of no significance. In the first challenge, of course the Framers were concerned with federalism. But this concern was primarily created because of the economic tensions among the various sections, states, and groups. Each state, each section, each financially-connected group of the nation had economic interests and those interests were, in many cases, congruent with the interests of the Framers themselves. So, federalism included economic protections and benefits for each section, state, and each represented group, and those same protections and benefits accrued to the delegates from those states and sections. In fact, those delegates were actually the authors, the designers, the creators, as well as the beneficiaries of those protections and benefits. In other words, federalism was merely a convenient structure for satisfying the economic interests of all who were represented.

But, and this is an important but, Beard pointed out, and Commager did not challenge, that the economic interests of all citizens were not represented at the constitutional convention. Some citizens were disenfranchised. They were denied a seat at the table even though they were the majority of the people. If some of their interests happened to fall within the circle of the small group of men engaged in designing the Constitution, then so much the better, but if not, they had no recourse.

Commager was willing to give some ground, but:

Now it will be readily conceded that many, if not most, of the questions connected with federalism were economic in character. Involved were such practical matters as taxation, the regulation of commerce, coinage, western lands, slavery and so forth. Yet the problem that presented itself to the framers was not whether government should exercise authority over such matters as these; it was which government should exercise such authority—and how should it be exercised?

He completely misstates Beard’s thesis. Beard did not say that the question was “whether the government should exercise authority over such matters.” Beard agreed with the Framers. He said that the question was how government would exercise authority over such matters. And, Beard’s answer to the question of how was to show that the methods chosen were those that protected and possibly improved the economic circumstances of the Framers themselves. The Framers had a problem—they wanted to protect their economic interests—and they designed a political solution to that problem.

When Commager began to discuss his second challenge, that the Constitution itself does not show any sign that it was designed to protect economic interests, he said this:

Mr. Beard makes amply clear that those who wrote the Constitution were members of the propertied classes, and that many of them were personally involved in the outcome of what they were about to do; he makes out a persuasive case that the division over the Constitution was along economic lines. What he does not make clear is how or where the Constitution itself reflects all these economic influences.

 But Beard did do what Commager said he did not do. Beard did show “how or where the Constitution itself reflects all these economic influences.” Commager must have overlooked Beard’s “Chapter 6, The Constitution as an Economic Document.” Beard devoted approximately 10,000 words to an explanation of the various ways in which the Constitution’s various articles and clauses were designed to protect the economic interests of the Framers and others of their class. Beard ended his Chapter 6 with this paragraph:

 To carry the theory of the economic interpretation of the Constitution out into its ultimate details would require a monumental commentary, such as lies completely beyond the scope of this volume.  But enough has been said to show that the concept of the Constitution as a piece of abstract legislation reflecting no group interests and recognizing no economic antagonisms is entirely false.  It was an economic document drawn with superb skill by men whose property interests were immediately at stake; and as such it appealed directly and unerringly to identical interests in the country at large.

 In addition, Commager, never a businessman, failed to understand what has become all too clear in our era, and that is that businessmen, men of commerce, want to limit government intrusion into their dealings as much as possible. But when there is an advantage to be gained by government intervention, the affected businessmen want to control the form and timing of that intervention—they want to write the necessary legislation to suit themselves. This process has become commonplace in our national and state governments, and it was made possible by the way that the Framers designed the Constitution.

Finally, having left not even a mark on Beard’s edifice, Commager returned to myth—he summoned “American Exceptionalism” to his cause. He quoted “the dashing young Charles Pinckney of South Carolina,” who said:

The people of this country are not only very different from the inhabitants of any State we are acquainted with in the modern world; but I assert that their situation is distinct from either the people of Greece or of Rome.[ii]

  Even if Pinckney was right, or even if he was “dashing,” his words had nothing whatever to do with Beard’s argument. Beard did not belittle the people of America. He merely was trying to explain the motives of the Framers. It is not sinister to have motives. I have motives. You have motives. I tried to explain my motives at the beginning of this book, and those motives, expressed in years of work, have resulted in this book. The Framers had motives and those motives led them to produce our Constitution, and that Constitution has produced varying effects upon the people.

[i] Charles A. Beard, An Economic Interpretation of the Constitution of the United States, p14, Location 199, Kindle Edition.

[ii] I do not know if Pinckney was an authority on ancient Greece, but it is well-documented that he owned slaves and worked them on his plantation. His father-in-law, Henry Laurens, earned great wealth as a partner in Austin and Laurens, the largest slave-trading house in North America. Obviously slavery was of great financial importance to Pinckney, and as Beard argues, he worked very hard to protect his financial interests. I cannot imagine why Commager quoted Pinckney except to say that he must not have known Pinckney’s background.

 

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