A Review of Economics for Helen

by Dr. Peter E. Chojnowski

"Economics" is the name which people have come to give to the study of Wealth. It is the study by which we learn how Wealth is produced, how it is consumed, how it is distributed among people, and so on. It is a very important kind of study, because it often depends upon our being right or wrong in Economics whether we make the whole State poorer or richer, and whether we make the people living in the State happier or not.1

By giving us a title such as Economics for Helen (apparently dedicated to Belloc's adolescent niece), Hilaire Belloc, in 1923, was emphasizing something that many others at the time, such as the Solidarist Heinrich Pesch, were also emphasizing. Economics is a human science about the very basic functioning of human society. It was a discipline that was not something abstract and unintelligible to the average man; rather that economics, as the study of the production, use, and distribution of wealth, was, in its basic concepts, accessible to all. With this conviction in mind, Belloc sets about denning and indicating the relationships between the basic concepts employed in the science of economics, such as wealth, land, the means of production, and capital. For example, one could not hope to even understand the scope of economics if one did not know that "wealth," which is the proper object of the science of economics, was properly defined, not as something possessed by someone, but as "those values attaching to material objects through the action of man, which values can be exchanged for other values."2 With this essential definition, we can understand "wealth" to be something necessarily social and civic in its very nature. With the social and civic dimension, we also enter into the moral dimension of human existence on account of the concern for justice that is part of man's inherent conception of his life lived among other men.

Even though Belloc understands clearly this necessary and essential link between the economic and the moral, in Economics for Helen he specifically indicates that the operation of economic laws and the demands of the moral law are two distinct things. Likewise, he further identifies the parameters of economic science by stating that,

The Science of Economics does not deal with true happiness nor even with well-being in material things. It deals with a strictly limited field of what is called "Economic Wealth," and if it goes outside its own boundaries it goes wrong.3

There are several aspects of this text, which open up new vistas for those seeking an alternative to the materialistic determinism of both the Marxists and the Economic Liberals. All of these insights, on the part of Belloc, into the very fiber of the economic life of man, point to the fact that economics is grounded in two realities, both of which the Capitalists and the Socialists have overlooked: the divinely ordained goal-orientation of human nature and the freedom of choice originating in the spiritual principle of man, which is his soul.

What these two facts indicate is that economics is grounded in the psychological, spiritual, and intellectual life of man to such an extent that the orientations and demands of this life create economic facts and laws that cannot be circumvented. One mentioned by Belloc is the idea of "subsistence." According to Belloc, "subsistence" is "the worth while of labor." By this, he means that if a certain standard of living were not provided to the worker, on account of his work, labor itself would no longer be thought to be worthwhile and, hence, would not be engaged in. Belloc identifies this as an economic law, rather than a moral law. Here we see the advancing of a concrete example of an "economic law" which all nations and economic concerns must adhere to if they are to maintain a healthy economic life. Moreover, Belloc implicitly refutes his accusers who charge him with collapsing economic law into moral law. If a nation does not provide its people, in their generality and in their individuality, with work that can sustain a man and his family at levels acceptable within the context of the national culture, men will not work and the nation will not prosper. Of course, it is the obligation of the State to ensure that companies and enterprises uninterested in providing subsistence wages do not simply locate their factories in foreign countries and export their products to the "job-free zones" of the "developed" countries.

The economic laws governing national economies also affect the outlay of capital. In this regard, Belloc affirms that "capital," or "already-made wealth which man uses with the object of producing further wealth," does not merely exist in capitalist countries. Just as "property," or "lawful control over a piece of wealth," continues to exist in communist countries. The only relevant question here is "who owns or controls the capital and property present in a nation?" Upon the answers to these questions rides the determination of the economic system under which the people of a nation live.

Having spent the first part of Economics for Helen delineating, in logical sequence, the various concepts that make up the science of economics, starting with wealth, moving through a consideration of the three elements necessary for the production of wealth, and arriving at the three parts into which produced wealth naturally divides (i.e., rent, interest, and subsistence), Belloc devotes chapters to two topics that render the definitional aspects of the earlier pages more immediately relevant and politically charged. Those two topics are money and banking.

In regard to money (i.e., currency) and banking, it is important to mention here that Belloc shows himself to be a perfect economic realist when he clearly states that both currency and some type of banking are the sine qua non of a complicated and advanced national economy. When money or currency is simply a medium of exchange, which is used to facilitate transactions between individuals with heterogeneous goods within the context of an economy based upon a highly specific division of labor, it serves as a useful human tool. When the currency becomes mere fiat money or, as Belloc calls it, "wretched bits of paper" (i.e., money to which the government or the "currency markets" assign a value consonant with their own needs but based upon no objective and regular standard of worth, like gold) then the nation with such a currency will see the greatest instability and social manipulation brought about by inflation and price fluctuation.

It is, however, the consideration of modern banking, as this began to flourish in England and Holland during the 17th century, which provides the incentive for Belloc to consider those economic systems (i.e., the Servile "slave," the Capitalist, the Socialist, and the Distributist), which would struggle for supremacy in the last three quarters of the 20th century. Again, as in his consideration of paper currency, Belloc states that the origins of the modern banking enterprise were innocent and obvious enough. Men who have capital to save look for those who have the means to guard deposited wealth. Those who control the deposits of others agree to return the money deposited to the depositors when that money is demanded. However, the bankers soon find that only a small percentage of the deposited savings are demanded at any one time, hence, rather than allowing large amounts of wealth to lie "unused," they "invest" the money to make more money. As this lucrative enterprise gains momentum, "partial reserve banking" (i.e., the system in which only a portion of deposited funds are actually "on hand" in the bank for the depositor to withdraw-the rest having been "invested") and usury (i.e., the taking of interest on non-productive loans) become more and more the order of the day. It is by these means that the bankers gradually gain a stranglehold on the financial resources of the nation. This clout even outweighs that of the capitalist who owns the means of production (e.g., factories, machinery, land, tools), since it is to the banker that the capitalist must go if he is to launch into any new enterprise, always, in current circumstances, being "short" of capital. This situation continues to the point where:

[t]he bankers can decide, of two competitors, which shall survive. As the great majority of enterprises lie in debt to the banks-any one of two competing industries can be killed by the bankers saying: "I will no longer lend you this money"....This power makes the banks the masters of the greater part of modern industry.4

The part of this text that might aid those unfamiliar with Belloc's Distributist thought is the section of the text on the "political implications" of his economic analysis. Here we find Belloc giving succinct definitions of the major systems which have, throughout the history of mankind, ordered the distribution and control of property, property being, of course, a necessary part of human society. Without some specific entity (e.g., corporations, guilds, governments, or private individuals) controlling every single item and piece of property in the world, those unowned items would eventually cease to be of any use to man, and "rot." The question that makes for the division between the various economic systems is, "Who controls the process of production in any particular society?"

It is advisable that those who see Belloc as a "closet Communist" read carefully his portrayal of the socialist economic system. He both views it as unworkable and states that it is totally contrary to his own wishes and intentions. Whereas Belloc wishes men to become masters of their own fate by possessing the property necessary to direct and sustain a life of fulfilling and efficacious work, Socialism, and its extreme form-Communism-would take such power and property out of the hands of the family man and put it into the hands of bureaucrats. In Belloc's own words, such a system would involve "complete surrender of personal honour and freedom and appetite."

If we, in the nascent 21st century, wish to sustain our honor, freedom, and happiness, Helen must not be the only one reading this text.

Dr. Peter E. Chojnowski has an undergraduate degree in Political Science and another in Philosophy from Christendom College. He also received his master's degree and doctorate in Philosophy from Fordham University. He and his wife Kathleen are the parents of six children. He teaches at Gonzaga University, Spokane, WA, and for the Society of Saint Pius X at Immaculate Conception Academy, Post Falls, ID.



--------------------------------------------------------------------------------

1. Hilaire Belloc, Economics for Helen (Liss, Hampshire, England: The Saint George Educational Trust, n.d.), p.6. [It has been reprinted by IHS Press and is currently available from Angelus Press ($12.95).

2. Ibid., p.8.

3. Ibid., p.9.

4. Ibid., p.96.

©Dr. Peter E. Chojnowski

Read more...

Why Money is Sick

by John Sharpe

"America has no better than a 10% chance of avoiding economic Armageddon."
-Stephen Roach, chief economist at banking giant Morgan Stanley

Common sense reveals the silliness of what today's economy is about. Is it necessary that basic tools and consumables be manufactured thousands of miles from where they will be used and consumed? Should it be that for Americans to become home "owners" they must pay money back to a lender two, three, or four times over, when the lender did no work and sacrificed no capital to loan the money into existence? Is it the case (using G.K. Chesterton's example) that milk should come out of a "clean shop" and not a "dirty cow" and that the average American dinner should travel 1500 miles before being consumed? Are things "normal" in the "world's breadbasket" when we've lost five million family farms since 1930, only 1% of Americans still live on a farm (compared to 50% a half-century ago), 62% of our agricultural output is produced by just 3% of our farms, 42% of produce is retailed by only five different concerns, 71% of government subsidies to keep the system running went (over the last seven years) to only 10% of the farms, and farmers are only getting nine cents worth of every dollar spent on food, while the rest goes to suppliers, processors, middlemen, and marketers?

The insanity doesn't stop here. All of the above is the result of what Bob Precher, writing recently for The Daily Reckoning, has termed the "credit-bubble" that has been "70 years in the making." The bulletin's editors note:

"the rise of consumer-credit capitalism [in which] people switched their attention from assets to cash flow... from balance sheets to monthly operating statements... from long-term wealth building to paycheck-to-paycheck financing... from saving to spending... and from "just in case" to "just in time."

Many sneered at Hilaire Belloc's prediction that capitalism would break down of its own accord, but these observations in fact imply that, absent the creation of huge volumes of credit, the breakdown would have occurred long ago.... Let's consider here.

First, there is US Government debt. Two years ago, Uncle Sam was in $6.12 trillion of debt [see "How Big Is a Trillion?" on p.35 -Ed.]. America's treasurers left that limit in the dust on November 18, 2004, passing a limit-increase to $8.18 trillion. Morgan Stanley's chief economist, Stephen S. Roach, said that this "open-ended license for fiscal irresponsibility is a recipe for disaster."


Second is mortgage debt. In the last two years mortgage debt has risen $2 trillion. This "funny money," rather than savings and real wealth, is what's keeping the economy running. As Richard Benson, President of the Specialty Finance Group, noted recently, the "increase in mortgage debt represents the spending that the Bush Administration needed to keep a $12 trillion economy moving forward." There's a bright spot: home "ownership" rose 2% to an all time record of 67.2%. Benson says:

The bad news is what had to be done to get it there while the labor force participation rate has dropped two percent!... [Easy credit and record low interest rates have boosted home sales. In previous economic cycles, the boost... came from rising incomes and more jobs!

The home-sale fantasy doesn't end there. The engines that drive housing finance, that is, government-sponsored enterprises Fannie Mae and Freddie Mac, are both under investigation for accounting irregularities that might impact earnings and losses by several billion dollars.

Third is corporate debt. Corporations being "in the hole" is not news; what is, though, is their increasing inability just to stay afloat. Beyond their total debt of some $7 trillion, major corporations can no longer keep up their end of the bargain as participants in the Servile State. Committed to caring for employees, cradle-to-grave, automakers and airlines find it impossible to meet their pension commitments. Doing so puts them further in debt, until the "realists" admit the process is unsustainable. Thus US Airways refused to continue making pension-plan payments, declaring at a recent bankruptcy filing: "It would be 'irrational' to make pension contributions (reported by Jim Jubak in MSN Money] because it provides no benefit to the estate." The alternative, Jubak explained, is for "senior pilots [to file] for early retirement by the hundreds and then [take] their pension in a lump-sum payout." He summarized the upshot thus:

Welcome to the bankruptcy economy, where companies and governments walk away from long-standing promises to workers, and where workers scramble to collect as much as they can now in fear that even less will be available tomorrow.

Bankruptcy, either formally declared in the case of troubled companies or informal in the case of cities or the U.S. government, will restructure the entire economy in coming decades.

Fourth: consumer debt. In 2003 it was $1.98 trillion. Americans consume more than they can pay for. The assessment from Tamara Draut, a director at a public policy institute that looked into credit card debt recently, is not pretty.

Too many Americans are drowning in credit card debt as a way to deal with the rise in the cost of living as their incomes have stagnated or dropped. It's... the band-aid holding the family budget together....

With savings at their lowest level since 1959, credit cards must pick up the slack. As Marshal Auerback's International Perspective reported, "the savings rate has averaged below 1% for the first nine months of 2004- the first time this has happened in seven decades." How else, then, to keep consumption going than by credit?

Fifth and finally: deficits. Continuously adding to much of our debt, the deficits in America's budget and current account reflect another denial of reality: they presume a limitless ability to get more than we can pay for. While the budget was balanced until President George W. Bush unbalanced it by nearly $500 billion, the current account-reflecting trade and other financial flows across American borders-remains in the red by $660 billion. A remarkable paper by Nouriel Roubini and Brad Sester calls this deficit "the defining feature of the global economy right now," pointing out that the US, "the world's largest economy-and the world's pre-eminent military and geo-strategic power-is also the world's largest debtor." This deficit also "looks set to expand significantly in 2005 and 2006," for our massive consumption of Asian-produced goods is not poised to decrease any time soon. With money flowing overseas and goods coming in, it's not American manufacturers, businesses, and laborers who are being remunerated. As James Gipson, manager of the Clipper Fund, wrote in his shareholder letter: "A slowly and likely growing share of our output of goods and services will go to provide comfortable retirements for the residents of Tokyo, not Topeka."

To make up for money leaving the US, the Treasury must sell its debt paper to the tune of some $4.5 billion dollars per month. Jim Sinclair, a veteran commodities and foreign currency trader, noted how precarious this is:

It is not necessary for major nations to sell US debt in order to un-float the boat of the US dollar...not buying as significantly as before will do the exact same thing. As the inflow to the US falls below $46 billion per month, the need per month rises, and so begins the process of drowning in debt (emphasis mine).

China's recent announcement "that it is considering the sale of US dollar-denominated Federal Debt," coming on the heels of "Russia's decision to consider doing the same thing [to shift] to Euro-based items," means that the system could unravel sooner than many think.

Fantasy finance is thus a "virtue" covering a multitude of sins. Critics forget this when saying Belloc erred in predicting capitalism's demise. With total debt over 400% of the Gross Domestic Product [i.e., the GDP, the total value of products made in the country where the factory or mine is located whether that value stays in the country or not -Ed.], $48 trillion dollars worth (four times the GDP) of the economic wealth in our nation still has to be paid for. What use is the capitalist wealth-creation engine if it only loans things to us at compound interest? Though a few can make great sums of money with unreal financial tools that postpone the inevitable, it's of no use for those aspiring to be owners of more than just debt.

Finance exists to facilitate production, and production to meet the material needs of man; it's that simple. Submission to that principle would initiate a "return to the real," opposing the profound unreality of credit and money-breeding, so characteristic of modern economic life.

Economics for Helen offers a true and simple sketch of economic principles to help our minds to return to reality. Then we can disconnect in practice from the unreality of modern economic life, to recover the contact with nature and real property that was once mankind's "natural state." Being productive will then mean not conducting on-line stock trades, but growing vegetables, learning a craft or trade, and mastering the basics of economic reality: food, shelter, clothing. Where two or three families unite to pursue this end, as many already have, there's no limit to what can be achieved.

The gadgets of our "comfortable" lives have profound social costs and, if we want to escape the unreal world of wage slavery, mass production, and debt speculation, must be sacrificed.

There are rough times ahead for credit-and-finance capitalism. Pundits are now predicting de-flation from an inevitable interest-rate hike as the Asians lose interest in bankrolling the dollar; this means "depression." Belloc said that "things will not get right again... until society becomes as simple as it used to be," and on that way back to reality there will no doubt be suffering: "We shall have to go through a pretty bad time before we get back to that." However, if the future brings suffering, it will also bring wisdom, even about things economic.

This is the Preface to Economics for Helen, the book reviewed starting on p.38 in this issue, published by IHS Press. Its author, John Sharpe, is founder and editor of IHS Press, based in Virginia. He and his wife Randa and their two children attend the Latin Mass at St. Athanasius Catholic Church in Vienna, Virginia.

Read more...