Endorsement of a Foundational Caux Round Table Ethical Principle for Moral Government and Moral Society

Recently, I read a new statement on freedom of speech and thought named The Westminster Declaration.

When, years ago, the Caux Round Table considered what kind of governance would be most supportive of moral capitalism, we proposed a set of ethical principles for governments.  The first principle was reliance on discourse, not compulsion, to frame laws, regulations, policies and programs that will be enforced by the police power of the state.  That principle states:

Discourse ethics should guide application of public power.

Public power, however allocated by constitutions, referendums or laws, shall rest its legitimacy in processes of communication and discourse among autonomous moral agents who constitute the community to be served by the government.  Free and open discourse, embracing independent media, shall not be curtailed except to protect legitimate expectations of personal privacy, sustain the confidentiality needed for the proper separation of powers or for the most dire of reasons relating to national security.

The new Westminster Declaration endorses this moral standard and provides reasoned justification for that idealism.

You can read the declaration here.

Rent Extraction is Not Moral Capitalism

In a recent antitrust lawsuit brought by sellers of houses in Missouri, a jury found that realtors had colluded to fix prices.  The realtor association adopted and enforced rules which have kept the commissions house sellers pay to realtors for assisting with a sale of their real property intact as the market price of houses rises.

As a result, realtors get more money for the same work performed.  A 6% commission as a fee for realtor service on a $100,000 house gives the realtor less cash than the same fee charged for assisting the sale of a $400,000 house.

The average price of a home in the U.S. as of July 2023 was $416,100.  In 2000, the average price of a home was $119,600.

As housing prices have increased through no effort on the part of realtors, owners end up paying more in cash for retaining a realtor.  What the realtor charges is set by rule, not by competitive market forces.  This is rent extraction.

Adam Smith was very aware of the benefits to businesses of fixing prices in order to extract more money from society.  He wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.”

The jury determined that realtors must return some $1.8 billion in commission fees to sellers of houses.

Bigoted Nationalism and the Abuse of Capitalism through Rent-seeking Corruption

Many of the critiques of “capitalism” point to the system itself, as if it were the only problem preventing us from enjoying wealth and social justice – and happiness.  Or rather, the critics point to the system necessarily exploiting human nature – our lust for power and money at the expense of others.

Now, what if the shortcomings of capitalism – private property, free markets selling what buyers want and can afford, investment in new technologies – were not the fault of the system, but of distortions imposed on the system?

In particular, the injustices that accompany crony capitalism.

I argue that crony capitalism is a corrupting use of private property and markets, where non-market power structures gain the ability to extract rents.  Where rents can be taken, rent-seeking is rewarded and so encouraged.  Rent-seekers then arise to bend and twist capitalist mechanisms into structures of inequality, where those in power get richer and the rest look about for the crumbs that might fall their way.

The Economist, in a recent article, raised yet again, though indirectly, the question of the morality of capitalism.  The magazine was looking at what it called “paranoid nationalism,” the practice of some regimes to ground their legitimacy on ethnicity or “groupiness,” the appeal for each of us to belong to a collective, be it ethnic (national) or religious.  The collective provides us with values, beliefs, best social practices and a sense of personal meaning in a silent cosmos.  We are, therefore, who we think we are.  Our individual place in history derives from the history of our group.

The Economist argued that promoting “groupiness” with explicit fears of others and superiority over others is a malign human search for belonging and prestige.  When people fear that their group is under threat, they rise to defend it, submitting to the claims of group loyalty.  Patriotism is the last refuge of the scoundrel.

As people become more and more submissive to such xenophobic leaders, the leaders themselves become more and more self-serving.  The Economist argues that bigotry opens the door to misrule and corruption.

Using the following chart, some conclude that more nationalist rhetoric is associated with more corruption and less nationalist discourse aligns more with less corruption.

Simply put, nationalism promotes state capture and rent extraction by an in-group of defenders of the tribe’s psychic well-being.

Capitalism Does Create Wealth. What is to Be Done with It?

Adam Smith argued that private enterprise created “the wealth of nations.”

In recent decades, enterprise has created a lot of wealth:

The Economist reports that for the last 20 years, global wealth has grown faster than economic output.

Such growth in wealth raises concerns about inequalities, with more wealth flowing to the rich than to the poor, especially in economies tilted towards rent-seeking by elites.

Last year, India had 849,000 dollar millionaires, nearly 25 times as many as in 2000.  The number of millionaires in Africa has grown 10 times.  Worldwide, the amount of private wealth seeking investment opportunities is expected to reach $230 trillion by 2030, up from $130 trillion today.

Finding the Middle Way

I have been in Bangkok and Tokyo for some days, just returning home.  The theme of my meetings has been a focus on, in Bangkok, the Buddha’s teachings and in Tokyo, on meeting with scholars of Shinto to learn more about an ancient practice, very ethnic, of living with the “other” – especially nature.

At Kokugakuin University in Tokyo, I was embarrassed to discover that I had never seen a key signpost for us that is contained in the word “Shinto.”  The “to” in Shinto is the same character as used in Chinese for Tao or the way, the path – the best use of our energies and talents.

The “Shin” refers to deities – “kami,” usually specific spiritual presences honored in shrines, but generally can indicate the realm of unseen spiritual energies, which can materialize their power in our human experiences.

The emphasis on the Buddha’s teachings, especially brought forward by our fellow, Venerable Anil Sakya, brings to awareness the middle path or “way” of seeing reality in all its complexity – tangible and intangible – and so of comprehensively keeping our balance by not falling into extremes of emotion, thought or action.

Once home, a thought occurred that in our American culture, we do have a middle way or way of equilibrium, but have recently much overlooked it.  I am thinking of the cultural, social, political and economic space between libertarianism, on the one hand and collectivism, on the other.

The libertarianism comes to us from the Englishman, Herbert Spencer, and the collectivism from the Frenchman, Jean-Jacques Rousseau.

Is this ideological confrontation, taking place before our eyes in our cultural divisions over wokeness or in the ostracism of those stigmatized as “deplorable” and deserving of “deprogramming” and in the factional strife among Republican members of the U.S. House of Representatives as to who is most libertarian, another Manichean duel to the death between the forces of the light and the dark, a contemporary struggle between Gog and Magog?

Each side believes it has the light and must subdue the demons operating in the dark.

Is such a confrontation of extremes necessary and unavoidable or might there be a third way, a middle path?

In Israel, along the Gaza Strip, we are seeing just that commentary of a Manichean confrontation, where Hamas fights a war without quarter against Jews, even against their children and women, to vindicate the magisterial glory of its chosen God.

What good do these Manichean confrontations achieve and when will they end?

Maybe Life is Not All One Thing or the Other?

I have been in Bangkok and Tokyo exploring approaches to balance in the Buddha’s teachings and in Shinto philosophy.  The Hamas attack on Israel took place when I was in Bangkok thinking about Buddhist mindfulness.  Given the news, my thoughts were not happy ones.

And yet…

Before I left, our fellow, Michael Labrosse, shared with me some reflections why despair is not always justified.  Our human community has matured in some important ways over the centuries. Here are Michael’s observations on grounds for continued optimism if we can listen to the “better angels of our natures.”

William James reminded us that the greatest force in the universe is attentiveness.  Einstein reminds us that imagination is more important than knowledge and most philosophers, theologians and social scientists agree that the greatest virtue is courage.

Most of us here are familiar with the work of Jim Collins and his well-researched investigation into what makes a good business a good business.  The genius of his book, Built to Last, and his subsequent work, Good to Great, are founded on one fundamental and counterintuitive principle: let’s not focus on what’s broken and attempt to fix it.  Let’s activate the greatest force at work in the universe and focus our attentiveness on what’s working, thus encouraging all of us to attend to what is working and good in our world. 

The statement and conclusions of the Caux Round Table’s 2023 Global Dialogue eloquently draws our attention to three acute realities:

1. Our human community is at an inflection point: something is past and something different is coming.  We are in a juncture of developments, provoking dysfunctions, exacerbating differences, precipitating separations and bringing on anxiety-inducing uncertainties.

2. Leaders up to our challenges and worthy of our respect are in short supply everywhere.

3. A recovery of commitment to personal responsibility is most needed. 

Perhaps if we seize hold of the wisdom of Einstein, James and Collins, we might consider expanding the Global Dialogue statement with a counter, intuitive mindset based on the law of physics, which states that what we focus on grows.  Where are human actions currently succeeding in our world?  Where are the leaders in abundant supply?  And where can we find commitment to personal responsibility, courage and imagination at work now, building the future we need and deserve?

Here are five examples of how the world is heading in a positive direction from a social scientist’s and the United Nation’s perspective:

1. Global decline in extreme poverty.  Over the past few decades, there has been a significant reduction in extreme poverty worldwide.  Many regions have seen improvements in living conditions, access to education and healthcare, leading to an overall better quality of life for millions of people.

2. Advancements in gender equality.  There has been notable progress in promoting gender equality and women’s rights across various societies.  Women are increasingly participating in leadership roles, education and the workforce, leading to more inclusive and equitable societies.

3. Increased access to education.  Efforts to improve education accessibility have led to increased enrollment rates, especially in developing countries.  This empowers individuals with knowledge and skills to contribute positively to their communities and economies.

4. Environmental awareness and sustainability.  More people and organizations are becoming aware of the importance of environmental sustainability.  Initiatives aimed at reducing carbon emissions, preserving biodiversity and adopting cleaner technologies are gaining momentum.

5. Advancements in healthcare and disease control.  Scientific breakthroughs and global collaborations have led to improved healthcare outcomes and disease control.  Vaccination campaigns, medical research and technology-driven healthcare solutions have contributed to longer and healthier lives for many.

These trends suggest that efforts to address social, economic and environmental challenges are yielding positive results and contributing to a better future for many people around the world.

If we look through a business lens, there are many examples of how the world is heading towards a positive economic future:

1. Technological innovation and digital transformation.  Rapid advancements in technology are driving innovation across industries.  The digital revolution is creating new opportunities for businesses to streamline operations, reach global markets and develop novel products and services.

2. Global trade and market access.  International trade agreements and collaborations are facilitating the movement of goods, services and investments across borders.  This interconnectedness fosters economic growth by opening up new markets and allowing businesses to tap into diverse consumer bases.

3. Sustainable business practices.  Increasing awareness of environmental and social issues is pushing businesses to adopt more sustainable practices.  Companies that prioritize environmental stewardship and social responsibility are not only contributing to a better world, but also building stronger reputations and attracting conscious consumers.

4. Entrepreneurship and start-up ecosystems.  The rise of entrepreneurship and supportive start-up ecosystems is fostering economic dynamism.  New businesses and innovative ideas are being nurtured, creating jobs, driving competition and injecting vitality into economies.

5. Investment in infrastructure and development.  Many countries are investing in critical infrastructure projects, such as transportation networks, energy systems and digital connectivity. These investments not only stimulate economic activity, but also lay the foundation for long-term growth and competitiveness.

These trends collectively indicate a promising economic landscape characterized by technological advancement, increased global collaboration, sustainability, innovation and investment in foundational economic pillars. 

What we focus on grows.

Is the New Frontier Being Reborn in America?

With trench warfare in Europe and religious intolerance driving war in Gaza, one can get pessimistic about the capacity of our human race to live with moral courage and compassion.

As a teenager, I stood in the snow in Washington, D.C. in January 1961 to hear newly elected President John F. Kennedy announce his vision of a New Frontier, not only for America, but for our world community.  You may read his inaugural address here.

The Caux Round Table Principles for Government hold that government is a trust, not an exploitation of the commonweal for personal enjoyment.  The principles further hold that discourse, as used by Kennedy that cold January day, is the ethical way to be political.

Kennedy’s nephew, Robert F. Kennedy Jr., has just used discourse to announce that he is running for president of the United States as an independent individual without being nominated by either of the country’s two established political parties.

In RFK Jr.’s announcement, you can hear the cadences of that 1961 inaugural address and you can experience the emotional impact of idealism.

Here is his announcement published in Newsweek Magazine:

Today, I declared myself an independent candidate for president of the United States of America.
And more than that, I joined my voice with all the people who are fed up and all the people who are hopeful, to make a new Declaration of Independence for our entire nation.

Today, I declared my independence from the corporations that have hijacked our government to milk us for profit.

I declared independence from Wall Street, Big Tech, Big Pharma, Big Ag, the military contractors and their lobbyists who now outnumber members of Congress 20 to 1.

I declared independence from the mercenary media that forever urges us to hate our neighbors and fear our friends.

I declared independence from the cynical elites, who betray our hope and amplify our divisions.
And finally, I declared independence from the two political parties and the corrupt interests that dominate them and the entire rigged system of rancor and rage, corruption and lies, that has turned government officials into indentured servants of their corporate bosses.  If left unchecked, they will commoditize our air, water, food, labor and children and turn the American dream into desperation and dust.

I declared my independence from these corrupting powers because they are incompatible with the inalienable rights that our original Declaration of Independence invoked in 1776: life, liberty and the pursuit of happiness.

How can we guard life when for-profit corporations have captured the public agencies that are supposed to protect us?  How can we enjoy liberty when a surveillance state seeks to hide the truth and quash dissent to preserve its power?  And how can we pursue happiness when our nation’s families are imprisoned by debt and hunger and jobs that will never pay the bills?

And so today, I declared my independence from the tyranny of corruption which robs us of affordable lives, belief in our future and respect for one another.  And to do that, I had to declare my independence from the Democratic Party and independence from all parties.

I haven’t made this decision lightly.  It is painful for me to let go of the party of my uncles, my father, of my grandfather and of both of my great-grandfathers – John “Honey Fitz” Fitzgerald, Boston’s first Irish Catholic mayor and Patrick Kennedy, a Boston ward boss, who together, launched my family’s political dynasty.

But my sacrifice is nothing compared to the risk our founding fathers took when they signed the Declaration of Independence 247 years ago right over there.  They knew that if their revolution failed, every last one of them would be hanged.  They chose to place everything on the line.

When John Adams put his pen down after adding his signature to the Declaration, he turned to those present and said, “Sink or swim, live or die, survive or perish, from this day on, I’m with my country.”  I make that same pledge today, so that I may stand before you as every leader should, free of partisan allegiance and backroom wheeling and dealing, a servant only to my conscience, to my Creator and to you.

Today, we are turning a new page in American politics.  There have been independent candidates before, but this time is different.  This time, the Independent is going to win.

The two major parties are fielding candidates that most Americans do not want even to run.  A shocking three-fourths of Americans believe President Biden is too old to govern effectively. President Trump faces multiple civil and criminal trials.  Both have favorability ratings deep in negative territory.

That is what two-party politics has come to and that is why we need to break the stranglehold of the two parties.  And that’s why we need to pry loose the hammerlock of corrupt power over Washington, D.C.  We are going to make this nation ours again.

Will Inhumanity Ever End?

I have been in Bangkok working with our fellows, former foreign minister Kasit Piromya and Venerable Anil Sakya, on how best to bring wider attention in our time to the teachings of the Buddha on the middle way, with humility seeking balance and equilibrium.  In an awful way, the Hamas attacks on Israeli civilians exposed the need for all of us to work to put in place solid foundations for civilization, with justice for all.

The Hamas attacks bring into question the futility of an effort like that of the Caux Round Table for Moral Capitalism to encourage action founded on moral principle.

As one who fought a war and afterwards delivered refuge to those under oppression, I have experienced the challenge of keeping our moral aspirations strong in the midst of degradation of the human into the sub-human.

I have just read the following letter from the president of the Carnegie Council for Ethics in International Affairs, which speaks to the mission of the Caux Round Table and to its importance:

The cruelty of the Hamas attacks on Israel is a shocking expression of hate and depravity, pure and simple.  We watch in horror and disbelief at this latest and most tragic example of man’s inhumanity to man.

It is vital that we stand with these victims and the people of Israel as witnesses to their pain and suffering.  And it is equally important that we condemn those who perpetrated these crimes against humanity – so intentionally, willfully and without mercy.

There can be no justification for the intentional killing of innocent civilians, hostage-taking and the imprisonment of women, children and elderly with the threat of public execution.  Any qualification – “yes but,” ‘on the other hand,” “at the same time” – is a hollow attempt at moral equivalence and an evasion of responsibility.

If the line is as clear as I suggest, then what are we to make of such a complete rout of ethical principles? 

Civilization rests on a convergence of reason and experience that yields principles such as individual accountability, the prohibition of torture and the duty to protect innocent bystanders. It is in the breach – precisely in moments such as this one – that commitment to these principles must be re-affirmed loudly, proudly and without reservation.

In 2016, Carnegie Council was visited by Gen. Moshe Yaalon, former Israeli Defense Force (IDF) chief of staff and Professor Michael Walzer, author of Just and Unjust Wars.  When asked about security threats facing Israel, Yaalon said: “Military excellence has handed us an advantage on the battlefield, but this edge can only be maintained if we preserve our ethical superiority.  And as the war on terror develops and intensifies, so must our determination to deliver an unequivocal moral response to the challenges it brings.”

Nations are communities based on values.  Hamas has revealed its values and Israel is now being tested in its response.  As Yaalon’s comments suggest, IDF leadership knows that military success alone will not be sufficient, as a moral response requires recognition of the rights of all – including Palestinians – and the pursuit of a just peace.

In his talk, Yaalon invoked the journalist Moshe Beilinson who wrote a 1936 editorial titled “Until When?” As violence flared in pre-state Israel, Beilinson asked: “Until when will we have to live by our sword?  Until when will we have to fight for our existence?”

The answer remains elusive and it lingers for Israelis and Palestinians alike.

Especially in this horrific moment engulfed in the fog of war, we cannot lose sight of the fact that mutual recognition and respect should be the determined goal for all of us who believe that a better future is possible.

We get there by reaffirming the equal moral worth of every human being, the duty to protect the innocent and a commitment to empathy as a matter of both morality and enlightened self-interest.  Those who commit to these principles will have the advantage of moral clarity in a time of turmoil and tragedy.

In the dark days ahead, let us hope these ethical principles will light the way.

Joel Rosenthal 
President 
Carnegie Council for Ethics in International Affairs

Valuation: The Beating Heart of Capitalism

Asset valuation, not profit, is the heart and soul of free market capitalism.

Short-term profit is just a waystation on the journey to create wealth.

The precise goal for making a profit is not taking in money, but making a “net” profit – money which is yours, which you can keep as an asset and add to your capital.  One can take in cash – “make a profit off sales” – but at the end of the accounting period, still end up worse off as total expenses were more than the gross profits earned.

Coming out ahead in the profit and loss statement demands good judgment about contingencies and risks.  It presumes hard-headed calculations of stakeholder circumstances.  First, is your product or service something that somebody wants to buy?  Secondly, will they pay you enough to cover your costs and leave you with a net profit?  Thirdly, will your calculated costs include taking appropriate care of your employees, investors and enhancing or at least protecting your brand appeal?

Then too, the capital value of your firm depends most on expected future net profits.  Making money today, but losing your market next week, is not the road to success in business.

Valuation analysis is the calculation of what “asset” value your firm now has in its expected ability to earn profits in the future.  Roughly speaking, valuation analysis speculatively estimates what your future profits will be and what risks are associated with that expectation. If your present expectations are subject to unpredictable future events, your realistic estimated value is low. You may dream about a rich and glorious future and your dreamy, unrealistic, expectations may come true, but most likely they will not.

In the U.S., a recent judicial opinion on the realism of Donald Trump’s past evaluations of his “assets” exposes the uncertainties of valuation analysis.

What was Trump’s ownership worth in present dollars?  How much would you pay to buy his business “empire” and use it to generate future income for yourself?

In an opinion of September 26, 2023, Judge Arthur Engoron of the Supreme Court of the County of New York, State of New York, harshly criticized the Statements of Financial Condition (SFC) filed on behalf of Donald Trump as false and misleading.

The judge came to this conclusion in the belief that valuation of asset values is a reliable assessment of objective reality.  That belief may well be an illusion.  Value, being an intangible personal preference, varies from person to person.  Some like it hot.  Others like it cold.  “Beauty is in the eye of the beholder.”  “One person’s trash is another’s treasure.”  De gustibus non est disputandum – “One can’t logically prove that one person’s taste is better than another’s.”

Preferences or, as economists call them, “supply and demand curves” and “utility curves,” come in many formats.  Price in money, as a measure of value, will be different for different sellers and buyers depending on the slopes of their utility curves.  I might sell low, but you might hold out to await a different buyer who has a different demand curve and will pay more for the same good or service.  I may need the money now, while you can afford to wait and try your luck.

An objective reality about value only comes into being in a transaction.  When the seller and the buyer have a meeting of minds about price, then that price is a social fact, a non-subjective number.  Yet, what those two people agree to as correct monetary value to place on the good or service may not be acceptable to others.

Valuation methodology, therefore, must be made to happen in an ecosystem of uncertainty.

Valuation is an approximation, a guestimate, of what an average person, one with an expert opinion or just a reasonable person, might think is a correct judgment as to worth.

Actually, the SFC filed on behalf of Donald Trump affirm the obvious.  They contain the following warning to those who will rely on the statements:

Assets are stated at their estimated current values and liabilities at their estimated current amounts using various valuation methods.  Such valuation methods include, but are not limited to the use of appraisals, capitalization of anticipated earnings, recent sales and offers and estimates of current values as determined by Mr. Trump in conjunction with his associates and in some instances, outside professionals.  Considerable judgment is necessary to interpret market data and develop the related estimates of current value.  Accordingly, the estimates presented herein are not necessarily indicative of the amount that could be realized upon the disposition of the assets or payment of the related liabilities.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated current value amounts.

In other words, Trump’s valuation experts disclose that their work is open to second-guessing, that it is not “true” like a statement of an uncontested fact, which would be either “true” or “false.”

Valuation paints a picture.  It is not photography.  And as an artistic construct, an SFC is more impressionist than scrupulous in its attention to every small detail or possible contingency.

But there are limits.  The range of reasonableness can have some scope, but not everything that might be said about the ‘value’ of something can be unquestionably reasonable or fully trustworthy.  You can’t treat a valuation opinion as actual money in your hand.  Valuation, to be useful in capitalism, needs standards of due care, credibility and integrity to bring it as close to money as possible.

Then again, to be realistic, what is the value of money?  Is it as good as gold?  Even the price of gold goes up and down.  How well will your dollar bills hold their market value?

Here is a chart on the real value of a dollar over time:

Supply and demand still do drive values.  Spanish police arrested 12 people suspected of stealing 74 tons of olives in the Spanish province of Seville, mere weeks after 6,000 liters of olive oil was stolen in Malaga.  Heatwaves and drought ruined this year’s harvest in Spain, the world’s largest producer.  As a consequence, the price of olive oil at origin has risen 112% since last year.

The purpose of valuation is to facilitate and encourage transactions which produce wealth and increase satisfactions, to reduce risk of failure and imbalance between the parties to a transaction and to promote trust in society and the economy.

Valuations which are unreasonable, though not intentionally fraudulent, are still dysfunctional. They should not be facilitated or accepted.

Judge Engoron, in finding some of the SFCs filed on behalf of Donald Trump to have been unreasonable, beyond the pale of sensible practice and so without sufficient integrity for a fair and transparent capitalism, pointed out details which were in-credible.

For example, from 2012 to 2016, Trump submitted SFCs claiming that his residence in Trump Tower, New York City, was 30,000 square feet in area when, in fact it only had 10,996 square feet.  Use of the larger number led to a calculation of total value which was overstated by some $114-207 million dollars.

Similarly, when the highest sale price for an apartment in New York City was $88 million, Trump’s SFCs reported the value of his property at from $180 million to $327 million during the years 2012-2016.

Now, to be fair to Trump and his valuation specialists, it is within the bounds of cosmic possibility that some buyer might pay those higher prices or close to them for the apartment for who knows what motivation.  But it is not within the bounds of reasonable probability that such a sale would ever be closed in Trump’s lifetime.

Trumps’s SFCs for the years 2011 through 2021 listed the Trump Park Avenue building as one of his assets.  In that building were unsold condominium units.  A number of these units were limited by New York City’s rent control laws in the amount of rent they could charge to tenants.  One valuation appraisal of those units with limited profit potential estimated a value of $62,500 for each such unit.  In Trump’s SFCs, the value of those units was much, much higher, a capitalized value of future income which would never be realized as long as the rent control laws were in force.

Trump’s renown club property in Florida – Mar-a-Lago – was assessed by the local property tax collector as worth between $18 million and $27.6 million between the years 2011 and 2021 as the capital value to be taxed at the legal rate.  In those years, Trump’s SFCs valued the property at between $426,529,614 and $612, 110,496.

The judge relied on a previous court ruling that “[where] the expert’s ultimate assertions are speculative or unsupported by any evidentiary foundation, however, the opinion should be given no probative force …”  In other words, the expert’s opinion is pure hokey or delusional from the viewpoint of the law.  From the law’s perspective, there is no expertise to support such a statement as to market value.  The supposed expert is just telling tall tales to entertain some audience.

Judge Engoron then focused on other not credible conclusions as to the value of Trump’s assets. The lack of credibility which he objected to arose not from theory but from factual discrepancies between legal rights and assumptions as to the value of those rights in the future, the assumptions being not logically supported by the limited nature of the rights owned.

With respect to several golf clubs, Trump had agreed to assume an obligation to pay refundable membership deposits. But his SFC’s from 2012 until 2021 valued that liability at $0 when in fact it was a liability in the millions of dollars.

Another discrepancy attached to Trump’s 30% limited partnership interest in a realty trust which owned office buildings in New York City.  The terms of his limited interest in the trust prevent his use or withdrawal of funds held by the trust.  Trump’s SFCs, however, classified his 30% limited interest as a “liquid/cash asset.”  The judge concluded that it was false and misleading for Trump to indicate that he had access to between $14 some million and $93 some million in liquid assets when he did not.

Trump used the valuation statements for his advantage.  Having property with high valuations is a strategic advantage in capitalism.  You can borrow more and put those funds to work on your behalf and people will credit you with achievement, which reputation can be turned to your practical advantage.  Valuations have consequences that drive market transactions.

Inflation and Capitalism

A big conceptual mistake which many smart people have made over the last 260 years is to conflate money with capitalism and capitalism with money, to misperceive that they are two sides of the same coin, joined back-to-back 360 degrees in the round and so conjoined like Siamese twins.

Money and its more generic category of economic dynamism – financial liquidity – are part and parcel not only of capitalism, but of all human socialized economic systems.

Ancient societies had money.  Feudal aristocrats used money and got into debt.  Stalin’s classic communist regime had currency.  None of these systems was capitalist.

Inflation – when money loses its value – is pernicious in its effects on social equality.  Under conditions of inflation, the rich get richer more easily and the middle class and the poor see their purchasing power decline.

But is inflation – the creation of too much money – inherent in capitalism?  No.

Rather, inflation and its opposite – deflation – turns capitalism away from fulfilling its promise to optimize wealth creation for all of a society.

Here is a chart on the declining real value of the U.S. dollar:

In what sense was American capitalism responsible for this?

Real median American household income after taxes fell 8.8% to $64,240 from 2021 to 2022 and the poverty rate after taxes, as measured by the Supplemental Poverty Measure (SPM), increased 59% to 12.4%.

In the U.S., from 2021 through mid-2023, prices have increased more than wages.

Here is a chart on growing inequality between the rich and the poor:

In the U.S., the share of national income going to those who provide labor, not capital, has been declining, exacerbating the effects of inflation on real wealth creation for most Americans.

How Inflation Eats Away at the Promise of Capitalism

Inflation works through money and other forms of liquidity.  As the supply of money/liquidity grows, the value of each unit of money/liquidity is worth less and less.  Simple supply and demand.  If ten dollars are in circulation, each dollar is worth 10% of the total pie.  If one hundred dollars are in circulation, each dollar is worth only 1% of that pie.

Now, under conditions of inflation, the poor and middle classes have limited opportunity to increase their incomes.  Most of what they earn, they spend.  They don’t have enough to save.  As prices rise in money terms – one ear of corn costs more in currency than it did – the poor and the middle classes must reduce consumption.

For the rich, it is different.  As Hemingway once retorted, “They have more money.”

They have enough to spend and to save.  As they save, they benefit from rising interest rates, which usually accompany inflation.  Their savings mostly go into financial markets, where they earn money on money.

The important point is that the private sector and markets do not create currency and other forms of money.  They do pass some of their money around as loans, but they don’t manufacture paper dollars or metal coins.  That is illegal.

While inside the capitalism system of private sector economic activity, thought financial institutions trade in money and liquidity.  The production of money is a government function.  The manipulation of interest rates and loan opportunities in the private sector is also a government function in a modern market economy.

So, where inflation is concerned, government can act at variance with social justice ideals.  The same is true when government policies in contracting the money supply can result in a recession or depression.

Now as money/liquidity circulates in an economy, it tends to flow from consumers to producers and sellers of goods and services.  Thus, those who are in business and finance gain a disproportionate share of the money/liquidity in circulation.  Those who have assets see the nominal value of those assets rise with the growth of money/liquidity.  They can borrow against those assets and thus, grab hold of more money with which to invest.

The Wall Street Journal just reported that interest rates on 30-year bonds issued by the U.S. government rose to 4.55%, the highest rate since 2011.  The yield on 10-year debt obligations of the U.S. government is now 4.479%, the highest rate since 2007.

We can ask with the Roman Judge Lucius Cassius: “Cui bono?” – “Who benefits?”
Not poor inner-city families living in subsidized apartments and on welfare.  Not the middle class paying more for gasoline with declining real incomes.

The total debt to be paid by the U.S. government is now $33 trillion.

That is a lot of liquidity sloshing around.  The bigger the government debt and the higher the interest rate, the more cash the government must come up with to pay interest and then retire the principal.  The payment obligations increase the government’s annual budget.  Since tax revenues are not enough to pay all of such budget increases, the government will run deficits – government money going out as expenditures to fuel more inflation – with more debt accumulating for higher outlays down the road.  A doom loop?

And private sector capitalism is responsible for this?

Inflation is not the only way in which money can cause disequilibrium in capitalism, interfering with its ability to optimize the production of both private and public goods.  Both debt and asset bubbles, which frequently are interlocking, divert capitalism into misapplication of investment and misuse of wealth.  Too much debt – too much borrowed cash in hand – coupled with too little prospect of repayment, leads to enterprise collapse or personal loss of assets.

Too much money, often borrowed, spent on assets with the hope (often illusory – “irrational exuberance”) of appreciation in asset value in the minds of potential purchasers raises the market price of assets above what long-term demand will support.  At some point, short-term demand evaporates, as long-term demand sets market prices.