I am a member of the Coalition for Capital Homesteading (a proposal consistent with binary economics), and I have found very little substantive argument against the plan. I was pleased to find a critical article in a Mises Institute newsletter archive, and I have prepared responses here to the points it contains. The article can be found at:

http://mises.org/daily/2085

It is written by Timothy Terrell.

Unfortunately, the article is a criticism of binary economics, which I am less interested in defending, compared to the specific proposal called the Capital Homestead Act as described at capitalhomestead.org. I do not support every theory and related proposal throughout history from those who helped develop the general concept. I do not define myself as a pure supporter of binary economics. If I had to label my philosophy, it would be “non-redistributionist populism".

I have been seeking reasons why more people do not find Capital Homesteading to be interesting and important. I believe it has more to do with apathy, complacency, fear of change and lack of knowledge about our economic problems than an actual dislike of the plan. Then there are people who do care about these subjects, but seem unwilling to “stick their necks out” for fear of being called liberal, conservative, Keynesian, “trickle downer” etc. by their respective colleagues. I find those who associate themselves with the Austrian economic philosophy to be the most difficult to engage in a serious debate. Most seem prone to dismiss any proposal that does not fit perfectly into their model, without spending much time studying it. This article is the only significant written criticism I have ever seen, but I show how the writer does not understand the proposal. My response is not the official position of any group, including binary economists or the Coalition for Capital Homesteading.

I would like to make it clear that I highly respect the Mises Institute, and I believe their proposals are generally good. As of this writing, I have only known about the proposed Capital Homestead Act for about three years. Before that, my preferred monetary reform followed the teachings of the Austrian School. I have always been anti-Keynes, have never voted for a Democrat Party candidate. I also traveled the country in 1992 as a ballot access petitioner for the Libertarian Party. I am thankful for everything these pro-freedom movements have done to expose the disastrous flaws in Keynesian economics. Their Keynes vs Hayek music videos are particularly smart and effective at communicating the problem to the masses. Compared to the system we have now, I still prefer what they advocate, including a metal standard, which is now third-runner up for me. My studies have lead me to now prefer a state-issued currency, as suggested by Bill Still, over a metal standard. And obviously, my favorite monetary reform proposal is Capital Homesteading, which I think is simply a better plan for all of humanity. It is more “just” and would be easiest to implement without changing many laws; and it can enjoy bi-partisan support. But we must end the fractional boom-and-bust debt-based nightmare, and I will vote for candidates who support any reform that does so; with a preference for (and campaigning for and donating to) those with Capital Homesteading in their platform.

My view is that money is now created through a scheme that empowers the banking and financial class as well as their corporate and wealthy favored customers. Mises supporters would prefer to end that scheme, but they have not been able to do so. Capital Homesteading is admittedly a similar scheme, but instead of an elite banking/financial class, it empowers average citizens; employing wealth-broadening techniques that can appeal to those who now support the Keynesian failure. So it is a compromise that society can easily implement, bringing the Austrian objectives of smaller government, asset-backed currency, ending the fractional-debt business cycle, and open competitive markets. I have found no other plan that can gain majority support that accomplishes these objectives.

Below are excerpts of the article published in The Quarterly Journal of Austrian Economics Vol 8, No 1 (Spring 2005) by Timothy D. Terrell. Pro-Capital Homesteading Layman's response in italics written by R. Dave Hamill, except for attributed quotes.

BINARY ECONOMICS: PARADIGM SHIFT OR CLUSTER OF ERRORS?

TIMOTHY D. TERRELL

Paragraph 1 Binary economics is...

I do not know where the line “rather than the quantity of capital” comes from. I think most supporters of Binary Economics are concerned with the quantity of capital, because they think Keynesian mechanisms provide too much frivolous, consumer-debt-based capital. The focus is on having only as much productive capital as is needed by the “producers” in the economy. Terrell seems to have a lack of clarity on this issue, which is even more apparent later.

Paragraph 1 Continued Its roots are...

Actually Kelso should be attributed as the author or co-author of binary economics' main proposal, now called Capital Homesteading. It has not significantly changed since he (and Mortimer Adler) first wrote about it. But the “roots” of the movement occur far earlier in American and world history, and they are so prevalent in the writings of prominent thinkers who are studied by economists, the lack of acknowledgment of them seems curious. I refer to some specific history gathered by Capital Homesteading advocate Michael D. Greaney, MBA, CPA and posted on his blog:

“Power, as Daniel Webster reminded us in the Massachusetts Constitutional Convention of 1820, naturally and necessarily follows property. Webster did not refer to consumer goods, even a primary dwelling, but landed, industrial, and commercial capital that produces marketable goods and services. The necessity of as many people as possible owning capital in addition to their labor has been recognized from the earliest times, but has increased in urgency as technology advances and displaces labor from the production process at an accelerating rate. In 1848 William T. Thornton published A Plea for Peasant Proprietors, a proposal to end the Great Famine in Ireland. The plan was based on making land available at a reasonable cost to the Irish to enable them to shift to other sources of food. Abraham Lincoln's 1862 Homestead Act helped America recover from the Civil War and the shift from cotton to wheat. In 1891, Pope Leo XIII declared, "We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners." In the early 20th century Peter S. Grosscup, one of Theodore Roosevelt's "trust busters," advocated "people-ization" of America's corporations by spreading out ownership.”

Lincoln's Homestead Act is the most glaring proven model of success for our proposal, due to the resulting full employment and economic boom yet to be duplicated since. Both use the primary productive capital of each era (land then, technology now). But perhaps the deepest, strongest, principled “root” of binary economic thought comes from an economist so prevalent in recent history it becomes almost conspiratorial to see how little his work is mentioned by business, government or academic economists. That is, the work of Harold Moulton who was the longest-serving president of the most trusted think tank in the world, The Brookings Institute (from 1927 to 1952). Greaney continues:

“Keynesian, Monetarist/Chicago and Austrian economics are all based solidly on the assumption that the only way to finance new capital formation is to cut consumption, accumulate money savings, then invest. Moulton completely disproved this assumption in 1935 in The Formation of Capital, presented as an alternative to the Keynesian New Deal. Moulton explained how, by discounting and rediscounting "bills of exchange" drawn on the present value of existing and future marketable goods and services, commercial banks and the central bank (the Federal Reserve) can create an elastic, asset-backed currency to replace the government debt-backed currency that has stifled growth and concentrated wealth in the hands of a few. The potential of "pure credit," that is, credit that is not dependent on existing accumulations of savings, is bounded only by what can be produced in the future, not by what has been withheld from consumption in the past.”

The Austrian School will not acknowledge Moulton because he “was” Brookings, which unfortunately now embraces Keynes. Keynesians wouldn't dare discuss Moulton's teachings on pure credit because it would jeopardize the validity of their flawed position now. In fact Brookings has little or no information about Moulton's work available on their extensive Website, except two short sentences mentioning his work on war debts.

The ignoring of Moulton's work regarding the nature of capital and other precursors to binary economics should probably not draw personal attacks from our camp. We can praise the “past savings” establishment talking heads for their devotion to their families, because most are maintaining their employment. Instead of personal attacks we should focus on educating new economic scholars and the public.

Due to blog entry size limits, read the entire response here:

sites.google.com/site/procapitalhomesteadmisescritic/