Economic Practice versus Economic Theory

It's a good thing practice and theory are two different things. If practice had to conform to theory, capitalism never would have gotten off the ground. Economic theory has been positively criminally negligent in its lack of capacity to deal with the realities of capitalist practice. This is because from classical economics onward, economics has restricted its purview to the exchange of goods and services -- the so-called real or natural economy -- neglecting the fact that, as Henry Dunning Macleod pointed out over 150 years ago, the greater portion of what is marketed is not goods and services per se but debts, claims on goods and services, to which John Rogers Commons (following Eugen von Böhm-Bawerk, himself a skeptic in these matters) added a third category, intangible property, i.e., goodwill, which makes up a good portion of what one buys when one buys shares on the stock market. These are all marketable assets, but to make them into goods and services is to beg the question of what a good or a service is.

So economists have neglected these other categories, considering them to be mere derivatives of the primary category of goods and services, and therefore safely ignorable. There have been exceptions -- the above-mentioned Macleod and Commons, for example. Macleod is quite interesting reading, and even if his exposition on banking and currency does not quite go far enough, it does go quite far in capturing the reality of capitalism for the benefit of economic science (for those with ears to hear, of course). Commons can be virtually unreadable, and his anti-capitalist bias is constantly undermining his analysis. Still, there is much to learn from him as well. Irving Fisher is another economist who recognized in business practice, and particularly in accounting practice, that there is more to economics than exchange of goods and services. Still, his quantity theory of money betrays little influence of that recognition. Ludwig von Mises as well recognized the importance of business practice, especially with his recognition of the importance of capital accounting. But once again, this had no impact on his view of credit expansion and currency, which, as far as I can see, he analyzed purely within the paradigm of commodity exchange.

Recently there has arisen a new form of economics that has successfully integrated the realities of capitalism into economic theory, by discovering the basis of interest, the sine qua non of comprehensive economic science. Unfortunately for English-language readers, the language in which this economics is exposited is German. The exponents are Gunnar Heinsohn, Otto Steiger, and Hans-Joachim Stadermann; the key text is Eigentum, Zins und Geld: Ungelöste Rätsel der Wirtschaftswissenschaft [Property, Interest and Money: Unsolved Mysteries of Economic Science] (4th edition 2006), by Heinsohn and Steiger, along with Allgemeine Theorie der Wirtschaft. Erster Band: Schulökonomik [General Theory of Economics. Volume 1: Schools of Economics] (2001). For the longest time, a translation of Eigentum, Zins und Geld has been "forthcoming" from Routledge, but there is still no sign of it. It really is an example of the guild mentality of economists that such a book still has yet to be translated! The same holds true for the General Theory, Vol. 1, which contains trenchant critiques of classical economics, Marxist economics, neo-classical economics, and Keynesian economics (as does Eigentum, Zins und Geld for that matter, although not as systematically). Once again, I will blow my own horn. I have included a summary of the importance of this school of economic thought in the chapter on "Common Law Economics" in my book Common Law Conservatism. So, if you are interested in this subject, don't neglect my little book!

Pumping liquidity?

If there is a punditesque phrase that irks me, then it must be "pumping liquidity." As in: "Why the Fed is still pumping Liquidity Into the Commercial Paper Market," or "Pumping Money: Financial Market Liquidity Explained," or "King commits to pumping more liquidity into banking system." The imagery is hydraulic, as if the economy were a machine, or perhaps a living body, with money circulating like blood, and the central bank the heart keeping it moving. Back in 1985 Brian Griffiths (in The Creation of Wealth: A Christian's Case for Capitalism (Intervarsity Press)) took issue with this metaphor, arguing that it inadequately explains the reality, and that the fault therein lies in the philosophy of monetarism, which views money and banking in this light. It does not do justice to the reality of the situation.

The metaphor of "pumping liquidity" suggest that central banks simply print money and somehow inject it into the economy (Milton Friedman's Money Helicopters), which if true would be inflationary in the highest degree. But that is not what occurs. When the central bank "injects liquidity" or "pumps liquidity" into the market, it is simply making liquidity available to its immediate customers, commercial banks, at less stringent, more accommodating conditions than hitherto. Either the interest rate is lowered or the range of acceptable assets to be taken in exchange for that liquidity is expanded.

The reality is this: money is never simply issued at no cost. It is always given in exchange for marketable assets.

Therefore, the issue of money is a market operation, a contractual operation, an exchange. Please check Common-Law Conservatism (pp. 58ff.) for more on this. It's really time that conservatives in particular stopped looking at banking as some sinister plot, bankers as conspirators against the common good. "The central bankers" are the core of capitalism; to criticize banking is to criticize capitalism. One must be honest about these things.

What's Wrong with Natural Rights

The main distinguishing characteristic of what I call "common-law" conservatism is a rejection of the notion of natural rights. This gets me in hot water with standard conservatives, who view the formulation of natural rights as put forward in the Declaration of Independence as the best way to formulate the difference between conservatives and statists, especially liberal statists. The Declaration declares it to be a self-evident truth that all men are endowed with certain inalienable rights and it is the role of government to recognize and preserve those rights. Hence, natural rights are prior to the state and in fact prior to the law the state enforces; natural rights are the source of law and the standard of government. Because men are endowed with these rights by their Creator, we also define the role of religion in public life, for the God who endows men with these rights certainly cannot be ignored by the state.

This is all coherent and convincing; but it is wrong and misleading. It is in fact an insufficient guarantee of the very rights it claims to enshrine as inalienable; and it by no means guarantees the recognition of God in the public life of the nation.

For what it does is establish rights as the source of law; it thus inverts the proper relationship. Law is the source of rights, for law defines the space within which rights operate. It is in fact impossible for rights to be the source of law, and so it is to make the human will the source of law which is what the doctrine of natural rights in fact accomplishes.

This is evident from the very nature of rights, which stem from a contractual basis. Rights are a form of relationship (jural relations), formed through agreement. Natural rights therefore make agreement the basis for law, for the state, for authority in general. They dissolve authority into consent. Every form of authority must therefore be based in willing acceptance, otherwise it can be dissolved. Even the parent/child relationship!

And it makes every relationship based in mutual consent to be valid and legitimate, even homosexual "marriage." Here is where the problem becomes clear: there are institutions which are authoritative in themselves and do not require consent or agreement to be legitimized. Marriage is one such relationship; the parent/child relationship is another. These stand over any attempt to reshaping by the human will.

And God is not guaranteed a voice in the public square by this doctrine of natural rights. In fact, the whole doctrine was devised as a way to keep God out of the public square, by postulating a "mediating concept" by which He might, as it were, express Himself from a distance, by proxy. Natural rights stand between God and the public square. They were devised so that no reference would have to be made to God's law, specifically the Ten Commandments, as the standard by which law and the state are to be judged. Human nature, not God's will, becomes the standard, and the human will, not God's, becomes the voice of authority.

Common-law conservatism aims to restore transcendental institutions back to authority, by recognizing that Stahl's principle of "Authority Not Majority" is the true basis for liberty. Authority comes first, and under its umbrella liberty can grow into maturity. To reverse the relationship, as does the doctrine of natural rights, is to destroy liberty and in fact to pave the way for the regime of human rights, of rights gone mad, of the litigious society where everyone and everything has rights, rights, rights, and where no one has any liberty anymore, where political correctness reigns supreme.

For a corrective, please read Common-Law Conservatism! And for a full-orbed alternative philosophy of law and the state, consult the volumes contained in the Stahl Project.

Orange and Stuart

I'm researching Covenant and Capital right now, and am currently at work on the interaction between England and Holland in the mid-17th century. It is amazing how intertwined the history of these two countries is. And what a fateful turn of events it was that the Houses of Stuart and Orange became connected through marriage in 1641, when William II of Orange married Mary Stuart, daughter of Charles I. From that point on, the Dutch Republic was torn between the interest of the estates (the so-called "States party") and the interest of the prince. These had always been in uneasy tension, but with this marriage the tension became unbearable. For from this point on the English royal interest, which itself was at war, hot or cold, with its own estates (Parliament), made use of the House of Orange to further its interest at home and abroad, especially to try to turn the Dutch Republic into a vassal state ruled by the Prince of Orange. The twists and turns of this history are fascinating to follow, and are set forth masterfully by Pieter Geyl in his Orange and Stuart, which, taken together with the corrections brought forward by Simon Groenveld ("The House of Orange and the House of Stuart, 1639-1650: A Revision," in The Historical Journal, Vol. 34, No. 4 (Dec., 1991), pp. 955-972) provides an unparalleled glimpse into the workings of the Dutch system. Geyl shows just how close the republican experiment, as conducted in the Netherlands, came to complete destruction. It held on by a thread; and it was William III, the son of the first William and Mary (the second was he himself, together with his future wife, yet another Mary Stuart), who actually turned against the Stuart connection, at least in this regard, and sided with the Republic; otherwise it would have been swallowed up by France in 1672. World-changing events, these, the significance of which is not very well appreciated. My book Covenant and Capital will hopefully bring this (and much more besides) forward in a new and convincing way.

Understanding the Second Amendment

This is just a note, not a detailed examination, so don't expect comprehensiveness. I only wish to highlight what I feel to be the proper meaning of the Second Amendment of the US Constitution, which reads thusly: "A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed." Many interpret this to mean that a militia, while once needed to defend the country, is no longer required since we have a rather massive apparatus of defence and protection, provided by the various levels of government. So we no longer need a militia. But this is to misunderstand the purpose of the Second Amendment, which was to ensure that regardless of the capacity of the government to provide protection, security, and defence, citizens need to retain the right to bear arms so as always to be able to defend themselves and not have to depend on the government for protection. The US system of government is built upon citizen self-reliance, where citizens take responsibility for many things, including self-defence, and where the state builds upon that self-reliance and capacity for self-defence, rather than substitutes for it. Citizenship entails self-reliance in a range of areas, including defence, and free governments are those which submit to that state of affairs rather than constantly seeking to replace it with a dependent, subject faux-citizenry.

A new blog, and this time it will stick (Deo volente)

Blogging is a necessary evil in my view. I really don't like to have to write something regularly for public consumption, as I am much more inclined quietly to do my research and write (hopefully) well-thought-out articles and books. But this sort of medium is an important link in the chain of getting those articles and books out in the open and exposed to the reading public who could profit from them. Which is why I will be maintaining this blog: mainly to shed light on the work I am doing in my study, but also to extrapolate from the theory to practice, to comment on the real world out there from the perspective I gain in that study. Hopefully you will profit from it, and I in turn will profit from your response. Which I anticipate with, well, anticipation.