Wednesday, March 18, 2009

It's All About Usury

With all the turmoil in the financial industry, you would think that there would be a national conversation of money and lending. You would think that this would be a good time to re-examine the way we create money and the way we lend it. You would think, especially, that it would be a good time to review the subject of usury, especially since the credit card market is about to collapse in the same way the mortgage market did. But no, that conversation has not taken place.
Indeed, the last great economist to address the subject was J. M. Keynes, back in the 1930's. Keynes, who was no friend of the Church, surprised himself by finding that the Church's restrictions on usury made perfect economic sense, a sense ignored by classical economists:
Provisions against usury are amongst the most ancient economic practices of which we have record. The destruction of the inducement to invest by an excessive liquidity preference was the outstanding evil, the prime impediment to the growth of wealth, in the ancient and medieval worlds…I was brought up to believe that the attitude of the Medieval Church to the rate of interest was inherently absurd, and that the subtle discussions aimed at distinguishing the return on money-loans from the return to active investment were merely Jesuitical attempts to find a practical escape from a foolish theory. But I now read these discussions as an honest intellectual effort to keep separate what the classical theory has inextricably confused together, namely, the rate of interest and the marginal efficiency of capital. [The General Theory, 351-2]
What Keynes is saying in this somewhat technical language is that when returns to pure loans are higher than returns to actual investments, you will have a problem; if you can make more money lending to consumers at 25% than to auto makers at 10%, then the money for making things will dry up, and loans will shift to consumption and speculation. We have often noted this problem in the pages of The Distributist Review, (see The Utopia of Usurers, Usury!, Usury: Wealth Without Work, and many other articles) but we can't honestly claim that we have made a big impression on the public. However, Thomas Geoghagen in the pages of Harper's Magazine, has written an indictment of the current system entitled “Infinite Debt: How unlimited interest rates destroyed the economy.” Unfortunately, the article is not yet available on-line, but it is worth picking up a copy of the magazine to read it.
There is an interesting parallel between the lifting of the usury laws and the abolishing of the abortion laws: both were accomplished not by democratic process, but by legislative fiat; in Marquette National Bank v. First of Omaha Service Corp., a 1978 Supreme Court opinion, the court found that an 1864 law prohibited the states from enforcing usury laws in their own state if it was legal in another state. For all practical purposes, this ended usury laws.
The lifting of the usury laws had dire unintended consequences, one of which was the decline of manufacturing:
It may be hard to grasp how the dismantling of usury laws might lead to the loss of our industrial base. But it’s true: it led to the loss of our best middle-class jobs. Here’s a little primer on how it happened. First, thanks to the uncapping of interest rates, we shifted capital into the financial sector, with its relatively high returns. Second, as we shifted capital out of globally competitive manufacturing, we ran bigger trade deficits. Third, as we ran bigger trade deficits, we required bigger inflows of foreign capital. We had “cheap money” flooding in from China, Saudi Arabia, and even the Fourth World. May God forgive us—we even had capital coming in from Honduras. Fourth, the banks got even more money, and they didn’t even consider putting it back into manufacturing. They stuffed it into derivatives and other forms of gambling, because that’s the kind of thing that got the “normal” big return; i.e., not 5 percent but 35 percent or even more.
But in addition to the economic effect, it had a profound effect on the moral character of the nation:
The change in credit-card caps also had a bad effect on the moral character of the nation. Because interest rates were so high, the banks no longer wanted borrowers with good moral character. Look at the way lending has changed just since the time I was in law school in the early 1970s. Even then, the mantra of my teachers in contracts and commercial paper was: “The loan must be repaid!” I have a friend, a professor, who still quotes that refrain. But it’s out of date. At interest rates of 25 percent, or 50 percent, or 500 percent, lenders don’t really want the loan to be repaid—they want us to be irresponsible, or at least to have a certain amount of bad character.
One question, however, is why we were willing to oblige the bankers by displaying such a poor moral character. No doubt the convenience of the credit card was a factor, but there is more to it than that. One reason is that we had too. The shift in the economy from manufacturing to finance meant that workers were no longer able to bargain for wages through unions and other means. Since 1972, the median hourly wage has stagnated. We experienced a very odd phenomenon: productivity exploded, but wages remained the same. Obviously, there was not enough purchasing power to clear the markets. Workers responded in two ways. One was to work more hours and put more family members to work, with a devastation effect on family life. The other was to borrow more. Further, the best and brightest of our students no longer went into engineering or manufacturing, but into finance. We started to lose even the knowledge of how to make things. As Thomas Geoghagen points out, not only did financial companies account for 40% of corporate profits in 2003, (up from 18% in 198 but this may understate the problem. Many “manufacturing” firms, like GM and GE, actually made their profits from their finance divisions. GM became a company that manufactured cars in order to make loans on them.
Our current bail-out plans are mainly directed at the banks, the hedge funds, the insurance companies, and other financial institutions. But this will not work. Without restoring manufacturing, farming, mining, and other basic industries, we cannot rescue the economy. But we have the order exactly reversed. The bankers get an instant bailout, no questions asked, while manufacturers, like the Big Three, have to crawl over broken glass to get what amounts to “chump change” in the context of the overall “rescue” numbers. Moreover, “contracts” with the derivative traders of AIG are regarded as sacred and unbreakable, while union contracts are broken at will.
It is the habit of the modernists to despise the past, and so it is no surprise that a restriction which existed in most cultures from the time of the Babylonians to the time of Jimmy Carter would be overturned. Yet, even modernism posits some empiricism, actually looking at the effects of an action. It is now long enough to look at the effects of the Supreme Courts 1978 decision. And without revisting this decision, we cannot fix the economy.

Posted by John Médaille
Monday, March 16, 2009

Brave New Alternative: Modern Distributism
[This article originally appeared in The Geauga Times Courier. It is reprinted here by permission.]

by Jesse Yates

The United States of America, at the time of its founding, was to be a nation governed by the rule of law -- by the U.S. Constitution. The Constitution’s Preamble, naturally, articulated its goals, among which was to “secure the blessings of liberty to ourselves and our posterity”. Set in stone, therefore, were certain indispensable means to this end: a limited federal government with powers both clearly defined and which acted to check and balance. Somewhere along the way, however, something went wrong. When states and big businesses are vying for “their share” of billions of dollars in taxpayer money, when they are groveling at the feet of a federal government, which can set any condition it wants upon them, can it any longer be said that the federal government works within the parameters originally intended to “secure the blessings of liberty”?

Many people point the finger of blame at Fabian socialists (modern Democrats), rightly decrying redistribution of wealth. What many of these people forget, however, is that welfare is welfare by any name, thus corporate welfare, money to big farms, and all sorts of Republican earmarks “redistribute wealth” just as effectively as any liberal scheme. But even aside from this type of redistribution, big business globalists (modern Republicans) wind up enabling the very ideology they claim to detest. When only a fraction of the already tiny percentage of capitalists are “too big to fail,” then government has no real choice: it’s either “bail out” or let civilization as we know it sink. To many, our current predicament is an absolute surprise. But to some, it is really no surprise at all. For a while now, in fact, there have been “voices crying out in the wilderness”, and it may be time to listen to what they have to say.

The title for this article was inspired, as a case in point, by Aldous Huxley’s work, though not so much by his classic novel Brave New World as by an alternative he subsequently offered. From works like Brave New World Revisited and a forward he later added to Brave New World, one will find Huxley speaking of the need for economic decentralization and distributing property as widely as possible in order to remedy the oppressive partnership between big business and big government; in connection to these remedies he draws upon names like Hilaire Belloc, Mortimer Adler, and Henry George.

Though none of these men are any longer with us, their ideas are still very much alive. Belloc, for instance, along with well-known author G.K. Chesterton, popularized a theory known as Distributism, and a simple Google search will turn up pages worth of modern Distributist theories, practices, and demonstrated successes. Among the successors of Belloc and Chesterton, John Médaille, who writes for a blog called The Distributist Review, is playing a part in advancing Distributism both by his insightful writing and by drawing upon allied elements -- like (Henry) Georgism, strategies evolved from Mortimer Adler by CESJ, and, in addition to Huxley’s references, E. F. Schumacher’s work (among others).

All of these men, incidentally, would agree with President Obama that change was long overdue; still, neither elitist socialists nor monopolistic capitalists, that is, neither Democrats nor Republicans have given, nor will give us anything but an insatiably power hungry “Servile State”. The an swer may be, as the song goes, “blowing in the wind,” but, then again, perhaps the “winds of change” and a brave new alternative, are only a few more Google clicks away.

Jesse M. Yates
Posted by Richard Aleman
Sunday, March 15, 2009

Learning from the Land: In the School of Saint Benedict
[Note: Please consider making a donation to Clear Creek Monastery. The Rule of St. Benedict is and should be an example to distributists across the world. The Benedictine monks at Clear Creek tirelessly work to "...build something beautiful for God" centering their lives in Ora et Labora (Prayer and Work).]

by Br. Philip Anderson, Prior
February 2009

Dear Friend,

As we enter the Lenten season — leaving behind the splendors of Christmas and looking forward now to that other pole of the liturgical year which is Easter — we discover that the greater simplicity and sobriety of this time of year lends itselfhttp://1.bp.blogspot.com/_pPwqucr9m54/Sb0gwR20kuI/AAAAAAAABw0/MaYnHzU-02M/s1600-h/clearcreek.jpg http://1.bp.blogspot.com/_pPwqucr9m54/Sb0gwR20kuI/AAAAAAAABw0/MaYnHzU-02M/s1600-h/clearcreek.jpg well to a meditation on man’s proper place in the universe as caretaker of creation.

For many years now ecology has aroused much interest, not only in regard to the immediate practical decisions that must be made by governments and businesses, but also as a topic of discussion in the broader cultural context. Our contemporaries seem to experience an ever-increasing alienation from nature and a need to somehow “re-connect” with the earth, while scientists continue to point to signs that the ecological balance of the natural world is being seriously compromised by the excesses of our technology.

The Church too has participated in the discussion. The Holy Father recently alluded to these questions in an address to the members of the Roman Curia (December 22, 200 :

Since faith in the Creator is an essential part of the Christian creed, the Church cannot and must not limit herself to passing on to the faithful the message of salvation alone. She has a responsibility towards creation, and must also publicly assert this responsibility. In so doing, she must not only defend earth, water and air as gifts of creation belonging to all. She must also protect man from self—destruction.

What does the great monastic tradition issuing from Saint Benedict have to say about this essential relationship with creation?

In fact, for men and women living in Saint Benedict’s day, the question would have had little meaning. The vast majority of human beings lived in rural areas then, and for them life was intimately and necessarily connected to the rhythm of nature. The day’s activities were programmed according to the hours of sunlight. The year was punctuated by the various seasons in which planting, harvesting and every important task found its appointed time. In such a world, excepting the case of a few very rich people in large cities, it was scarcely possible to become disconnected from the rhythm of creation.

Nonetheless there is much in the wisdom of Saint Benedict that speaks to our present needs in terms of returning to a wiser way of life, a life closer to the land.

One of the pillars of the Rule is evangelical poverty. There would be neither an economic crisis in the world today, nor an ecological threat, were it not for the evil done by greed. Monastic poverty means being content with the simple things that sustain human existence in its inherent goodness. This poverty allows man to live in harmony with field and forest, without feeling the need to brutally strip the earth of her resources in order to realize an immediate gain. Although the economic reality in America has become increasingly complex in our day, it is still possible to recapture this joyous sort of poverty. We are not speaking of the tragic misery of the desperately poor, but of an attitude rooted in the Christian faith. E.F. Schumacher's Small Is Beautiful: Economies As If People Mattered (first published in 1973) offers insights that seem more timely than ever. Another important work, Flee To The Fields: The Founding Papers of the Catholic Land Movement, with a preface by Hilaire Belloc, charts a way forward in terms of an explicitly Catholic perspective.

Of course, the great corollary of evangelical and monastic poverty is work, especially manual work. Ora et Labora ("Pray and Work"') is often given as the Benedictine motto. The very early monks found that this work with one’s hands was something necessary in order to be able to pray well. Sometimes they would burn all the baskets they had woven during the year — having no need to sell them in order to make money — and start all over again, simply because this activity was good for body and mind! Saint Paul worked with his hands, even though he was entitled to live from his preaching of the Gospel. Manual work is an excellent way to put us back in touch with the wonder and beauty of creation, despite the fact that since the Fall man must toil by "the sweat of his brow" amid thorns and thistles (Gen. 3:18-19).

At Clear Creek we exercise many forms of manual labor, including carpentry, forging and much building, not to mention those domestic activities such as cooking and the making of clothing and shoes. In terms of our direct relationship to the land, the most notable activity would probably be that involving our forest, composed mainly of various types of oak trees. For several years now, thanks to a grant from the Sustainable Agriculture Research and Education Program, we have been working to improve our land by clearing unhealthy trees from the forest, thereby letting in more sunlight. This allows certain grasses to grow, which in turn offer new pasture for our rugged-hair sheep. We intend to bring in goats as well to clear unwanted weeds and brush from the under wood. We also have planted many trees, especially pines. Monks learn many a lesson from the land.

It would all be to no avail, however, without something more. The French author and statesman, Andre Malraux, famously said, "The twenty-first century will either be spiritual or it will not be". Even if a nuclear conflagration is somehow avoided — and the threat has by no means disappeared — it will take something more than a form of "global awareness" to preserve the world’s natural resources. This is where the other half of Saint Benedict’s motto, Ora ("Pray”), enters the picture.

Among the animals of the forest only one is capable of ruining everything, the one who walks upright, the same one whom God established shepherd of all creation in the beginning. It is the spiritual struggle between good and evil being waged in his heart that causes man, either to care for creation, or to destroy it. This is what Pope Benedict XVI meant when he said in his discourse to the Roman Curia last December, "What is needed is something like a human ecology, correctly understood". It is through prayer that we realize this human ecology, transcending the limited resources of the natural environment.

Between the somewhat romantic musings of city folk, who dream of moving to the country to start a new life, and the harsh reality of having to earn one’s daily bread from the earth that has become rebellious to sinful man, there is certainly a wide margin, which is also a serious challenge. But do we really have a choice?

The well—known Catholic author and educator, John Senior, was once giving a talk to a small group of adults about this very idea of escaping from the excesses of a civilization worn thin with technology. While he was saying something to the effect that "real swimming" is done in the ocean or lakes — or more modestly in the "old swimmin’ hole" — an old-timer who was among the listeners brought forth the objection that "we used to lose a few in the ‘swimmin’ hole…'". Looking the man squarely in the eye, Senior replied, "Yes, but we are losing all of them in the swimming pool."

Monastic life does not hold the key to unlock all of the world’s problems, but a serious reading of the Rule of Saint Benedict can be an inspiration, not only for monks, but also for those living outside the monastery walls. This is especially true due to its precious sense of balance, organizing things around the poles of prayer and work. It is our hope that Our Lady of Clear Creek Monastery, by living from the Rule, can help many to recapture the joy of a human existence rooted in faith – and the non-so-common realism of common sense.

May Our Lady of the Annunciation obtain for you an abundance of heavenly blessings.
Posted by Richard Aleman
Friday, March 13, 2009

Distributists and the Draft
Lately Rahm Emmanuel made some waves by repeating the oft-proposed suggestion of reinstating an active draft. I've often thought about this topic, and for a long time I was in favor of the draft. Two to four years of service required of every able-bodied man for the defense of his country. Who could object to such a benign proposal? Who could possibly oppose serving one's country?

You see, as I think I've mentioned before, I come from a long, long line of military folk. Longer than history records, most likely. The earliest military man in my family that I'm familiar with (my grandfather has it back to Hastings) is Edward "Redsleeves" Goodman, who fought with Henry VII at Bosworth Field, and received a beautiful coat of arms for his valor and service. My people have fought in every single declared American war, and few others besides. One of my ancestors was killed at the battle at Hayes Station in our American revolution (after the battle, actually, cruelly and quite illegally executed by a British officer, by the sword). Another fought in the war of 1812; another fought in that cruel war in which Texas was stolen from the Mexicans. My great-great grandfather, Samuel Goodman, served in the Texas cavalry during the American civil war. My great-grandfather, Charles Goodman, served as a medic in World War I, bravely saving many lives, even to the point of swallowing some of the dreaded mustard gas, which caused him health problems for the rest of his days. My father's father served bravely through the Korean and Vietnam conflicts (he did twenty-one years and was in his last year of service in Vietnam; I'm not that young), even being slightly wounded while attempted to assist another wounded soldier. (He did not request a purple heart, as he felt this was not really a battle wound.) My mother's father had a scholarship to go to college in 1940; instead, knowing that war was coming, he joined what was then the U.S. Army Air Corps and flew countless missions over Europe. Three times he was shot down; twice he was shot down over water; one of those times he was the only member of his crew to be pulled from the Channel alive. The third time was over France; he managed to find the French underground, which successfully smuggled him back to England, where he hopped directly back into a plane and started flying missions again. My own brother has served in Iraq with the Marines.

So my people are intimately acquainted with the duties and responsibilities of military service in defense of their country. Few families could be more so. And we know that it is hell.

William Tecumseh Sherman, of course, who has the negative distinction of being one of the more brutal generals of our history, uttered those famous words:

You cannot qualify war in harsher terms than I will. War is cruelty, and you cannot refine it; and those who brought war into our country deserve all the curses and maledictions a people can pour out.

Coming from a man like Sherman, this means a lot. War is terrible, a horrible curse on a country. War takes the bravest, the youngest, the strongest, and throws them into a literal meat-grinder. It leaves homes empty, fields untended, shops unkept, wives without husbands, and children fatherless. Even those who return are scarred forever. War is the destroyer of worlds.

And here I refer only to a just war, and one in which the laws of civilized warfare are obeyed. Such wars are rarely fought in our sad times. In these enlightened days, wars kill not only brave men, who put their frail bodies between their homes and the war's desolation; it kills our women and children, destroys our fields and our factories, and wreaks havoc on everything throughout the land. Even the just war, about whose permissibility there can be no legitimate question, is a monumental tragedy, a scourge upon any land; the unjust war is unspeakably terrible, a horror which defies mortal description. War is, truly and without ambiguity, the destroyer of worlds.

Mars always rode into battle on a chariot pulled by Timor (Phobos) and Metus (Deimos). Few images could be more terrifying, more suitable for the inhuman bloodbath that is even the most just of wars: terrible, bloody War, riding to the slaughter pulled by Fear and Dread. The people that forgets this, that trivializes the horror that is war, will brutalize their country and ultimately lose their humanity. That's what happened to Europe in the early twentieth century; that's what's happened in America before; God help us, it may yet happen here again.

The draft is a means of keeping a large standing army for purposes of warfare. We've used it many times in America; both North and South had a draft in our civil war, and we had a draft in World War I. Starting in 1940, however, we had the first-ever peacetime draft, which lasted through peace and war until 1975, and then from 1980 to the present day, though no one has actually been forcibly inducted into the military since 1975. Our Supreme Court has declared it constitutional. But is the draft moral, in peace and in war? What is a distributist to think of this idea?

War in general is even more harmful for the distributist society than for a capitalist one. In a distributist society, most citizens are owners of their own productive property, and themselves care for their own property. Fields and shops require constant care and maintenance; leaving them for any extended period is an extremely important decision that will not be made lightly. The farmer will not leave his fields for anything other than the direst causes; the well-being of his property, and thus of his family which depends upon it, is at stake.

For example, among the most distributist societies in modern history, the Vendée in France, began its revolt against the French Revolution precisely because Paris had passed a universal conscription program. The Vendéens couldn't send their young men to the army; they needed their young men at home, in the fields and the shops. Spreading the revolution was not worth leaving their property; but to defend their right to remain at their property until they determined the cause was dire enough, they would (and did) fight to the death.

Universal conscription requires that every young man (and, by most proposals in our degraded times, young women as well) to leave their homes and their property for two to four years to serve in the military. This will probably, given our current quagmires and all the proposed future ones, involve serving in war. The distributist should not support this.

First, as discussed above, war is terrible. Universal conscription serves only one purpose: keeping a large army ready to make it easier to fight wars. The easier it is to fight them, the more often they will be fought. While Switzerland, wealthy and cuddled by the forbidding Alps, has remained peaceful, history shows that nations with universal conscription are nations with frequent and larger wars. Wars in Europe, for example, only became universally destructive after universal conscription made them so. Given how destructive war is by nature, and how even more destructive it is to a civilized society, any policy which makes wars easier to fight ought to be opposed.

Second, the distributist wants families to be economically self-sufficient and spiritually strong; universal conscription makes that impossible. Economic self-sufficiency depends upon the head of the household being available to care for the family's productive property, and often it depends on the assistance of the head of household's older children, particularly his sons. Conscription will take away the head of household when he is young and most needed to establish his property; it will then take his sons when he is older and most needs them to help prepare that property to be passed down to their care. Then again, conscription takes the head of household when he is young, and his wife most needs his support, and his children, if he yet has any, are young and need their father as an example of just and loving rule; it then takes his sons when they are just coming into manhood, just starting families of their own, when they most need to be close to their father, who can show them the way. Universal conscription thus strikes at the very heart of the distributist agenda: it renders the self-sufficient and spiritually strong family exponentially more difficult to achieve. The distributist should not support it for this reason.

Should the distributist oppose all conscription? Certainly not. It is every man's honor and duty to defend his homeland when it is under threat, and conscription is an easy and effective way to ensure that, when needed, citizens can be brought together for that defense. If I believed that America were under an imminent threat, I'd race you to the recruitment office, and I have a wife and children I could easily use as an excuse to stay home if I wanted. Despite all of war's horror, there is honor and good in killing and dying in defense of hearth and home; distributism is most emphatically not pacifism. But it is not every man's duty to abandon his home, his family, and his property when his service is not needed for a just war.

But in today's modern wars, citizens simply aren't prepared to fight without training, and without peacetime conscription how can that training be provided? Imminent threats seldom leave time for extensive military training, after all. There are many ways, however, to prepare citizens for that sad necessity, the most reasonable being the weekend method. From the twelfth to the fifteenth centuries, for example, the heyday of the Anglo-Welsh longbow, English law required all able-bodied Englishmen and Welshmen to practice with the longbow for two hours every Sunday after Mass, to ensure a citizenry prepared for war should they be required. Such longbowmen proved to be the most effective military units in Europe.

Longbows are, of course, weapons of the past, but the principle holds true. Young men, upon reaching a certain age, are trained in the weapons and equipment of warfare near their own homes. Such methods provide a citizenry trained in the weapons of war, ready to fight should their fighting be needed, but does not tear young men away from their family and friends during some of their most formative years. It better respects the principle of subsidiarity, providing more localized training for more localized units, familiar with the tactics and weapons which are appropriate for those particular areas. And finally, it trains soldiers to fight knowing that they are fighting only for what is nearest and dearest to them: their homes, their families, and their property. A distributist solution, indeed.

As distributists, I suggest we all oppose efforts at universal conscription, and instead support a "national guard" on this model. Going hand-in-hand with our opposition to all wars which do not unambiguously meet the requirements of Catholic just war theory, distributists can offer something true and practical to our society on this point as on so many others.

Praise be to Christ the King!

Note: This is published under the Creative Commons Attribution-Share Alike 3.0 United States License.
Posted by Donald Goodman