Dubious Entitlements
BROCKWAY, GEORGE P.
The Dismal Science DUBIOUS ENTITLEMENTS BY GEORGE P BROCKWAY It is assumed that a lender is entitled to get his money back when a loan he has made matures. It is further assumed that he is...
...Businesses (who do most of the borrowing) couldn't afford the high rates and cut back on production or went out of business altogether...
...The difference was unknown to Aristotle, St...
...Since capital is long-lived—sometimes almost immortal—and since it is interchangeable—sometimes as nondescript as putty—it is not bound, at least to the extent labor is bound, to a particular time and place...
...Thomas Aquinas lived long ago, he was not a fool, and his opposition to usury was not without reason...
...Consequently, it would seem only right that if it is just to charge for the use of land or of shovels, it is also just to charge for the use of the money that can be exchanged for land or shovels...
...The next step is a big one...
...and a record 4 per cent of the nation's banks are on the Federal Deposit Insurance Corporation's "problem list...
...Thomas' mentor, and it is unrecognized by today's hard-money men, but it can be quickly illustrated...
...This is a Reaganomic result probably even greater than that achieved by the Trojan Horse budgets and tax laws...
...The land, the shovels and the money are interchangeable...
...The next step is an even bigger one...
...He is evidently thinking of the use of money to buy consumption goods...
...This is very strange because as we have said, capital is nothing if not past labor...
...The exchange is indirect...
...It seems reasonable and proper for a landowner to charge another for the use of his land...
...The Federal Reserve Board cooperated by restricting the supply of money, thus magnifying the demand...
...Interest, St...
...No object has rights (except in the cuckooland of some now fashionable philosophers), because objects can discharge no duties...
...If you can charge for the use of your land, you can charge for the use of your shovel or boat or whatever...
...Thus what is past, what is no longer, turns out to be more powerful than what is...
...Let us begin by examining what capital is (for our purposes here we will not bother to distinguish between cash and producer's goods...
...Hence it is by its very nature unlawful to take money for the use of money lent...
...For contrary to what is widely thought, money is different from ordinary commodities such as potatoes, shovels to dig them with, or ships to transport them in...
...A week's labor brings a week's wages...
...For control of the means of production, what Communists call capital, enables the state to decide how the people shall work and live...
...But, reasonable as it may seem, we are at this point off the slope and into the soup...
...Now, if capital is saved labor, it would seem that it should be treated the same way as labor...
...Our bankers, led by Walter Wris-ton of the sleepless Citibank, managed to shrug off many of the New Deal regulations that were based, albeit unconsciously, on the fact that money is different...
...Even without weapons and enforcers, however, capital is stronger than labor...
...Yet understandable or not, these entitlements have curious consequences...
...this was inappropriate in a Temple, but it was and is a necessary service and worth modest fees...
...What chiefly distinguishes our economy from his is the shift of banking from money-changing to money-lending, and the further shift from lending money to support the consumption of kings and dukes to lending money to support production...
...The entitlements mentioned at the outset may not now seem so absolute—and indeed far less absolute than the entitlement of every citizen to food, clothing, shelter, and care in his old age...
...He may, when he retires, receive Social Security benefits, but they are not wages...
...And being less restricted than labor, capital is more agile and more powerful in any contest between them...
...It should be immediately obvious that capital, though it is saved labor, is different from current labor...
...A laborer is worthy of his hire...
...One sells one's land, gets money for it, and uses the money to buy the shovels...
...But the laborer does not expect to have his labor, or any part of it, returned to him at the end of the week, nor does the laborer expect to continue to draw wages for that week's work after it is done...
...Why should I lend money if I do not expect to have it returned...
...These differences provide the ground for a far more important one...
...If potatoes are overpriced, for whatever reason, only the potato business languishes...
...In a free money market, the only way the banks can be kept from ruining each other is by allowing them to ruin the economy...
...This, at first blush, appeared to be an act of generosity on their part...
...Oddly enough, philosophers have not been bothered by rent (aside from Henry George, who objected to landowning...
...It can earn interest forever...
...To paraphrase Yogi Berra, when it's over, it's over...
...How can it be for the dead and gone...
...In the process, those with money to lend (in general, the rich) are enriched, and those with a need to borrow (in general, the almost-poor) are impoverished...
...At the most primitive level, someone has to go to the labor of discovering the land, occupying it and exploiting it in some way...
...The law, in its determination to protect a man's home, which is one form of property, has drifted into absolute protection for all forms...
...Whatever right capital has to earnings is based on the fact that it is saved labor...
...Why should I temporarily forgo the use of my money unless I am suitably paid for my abstinence...
...If, however, money is overpriced, bankers (who have the money to lend) may not suffer at all, but the entire economy languishes...
...so if inflation is anticipated, he is entitled to charge extra-high interest on an account...
...As an object, capital has no rights...
...People with money to lend were charmed by the high rates that banks urged upon them...
...This situation, though, obtains also under communism...
...And this is what we have seen happen...
...Perhaps, as Marx claimed, the state with its police performs the same service for today's capitalists...
...These assumptions are certainly understandable...
...Although St...
...The proper and principal use of money," he held, "is its consumption or alienation, whereby it is sunk in exchange...
...But with the exception of slavery and possibly certain sports and entertainment contracts, labor can be "sold" only once...
...One can always eat cake...
...Once you take that step, you are on a slippery slope, though the slide has taken centuries...
...It is further assumed that he is entitled to get not only his money but his purchasing power back...
...that is, they can be exchanged for each other...
...Banking was originally money-changing...
...No capital ever came into existence except as the result of labor, and no capital ever did any work except in conjunction with labor...
...The principle seems the same, and furthermore you can sell your land and buy shovels to rent out, and vice versa...
...In particular, bankers outwitted so-called Regulation Q, limiting the interest they could pay...
...Competing with each other in the good old free-market fashion, even reluctant banks (notably the savings-and-loan associations) had to run up their rates or lose their depositors to more aggressive neighbors...
...Not even land, in the economic sense, exists except as a consequence of labor...
...Interest has always been a problem for thoughtful men...
...Keynes once calculated that every ?1 Sir Francis Drake brought home in 1580 had by 1930 become ?100,000...
...If real estate (remembering my column on "Appearance and Reality in Economics," NL, December 26,1983, note that word "real") is alienable (see "Life, Liberty and Property," NL, July 11-25, 1983) then practically all kinds of property are, as the lawyers say, fungible...
...Very likely the original capital was a hunter's club or stick that proved as effective in controlling other men and women as in killing game...
...Capital, regardless of how you define it otherwise, is saved labor...
...To pay their depositors increased rates, they had to charge their borrowers increased rates...
...Individuals did not buy new homes, and many lost the ones they had...
...There is another difference: Capital can be bought and sold, can change hands indefinitely...
...In modern societies it rarely happens that one exchanges land directly for shovels or boats or other forms of capital...
...Recovery or not, there are now over 735,000 bankruptcies before the courts, the most ever...
...and at the end of one job, it is expected to be returned intact, whereupon it can be let out again...
...After a bit, the demand diminished...
...If in a free market the price of shovels depends on the supply of and demand for shovels, it would seem reasonable that interest depends in the same way on the supply of and demand for money...
...Yet we cannot help feeling that Jefferson was right in saying that life is for the living...
...Thomas thought, was something else...
...The discovery of the enormous power of compound interest, which is using money to support production, dates only from the 16th century...
...It is past labor, as opposed to current labor...
Vol. 67 • February 1984 • No. 4
