No, this is not a posting on the situation at the University of Notre Dame, where the president, the Rev. John Jenkins, C.S.C., has openly flouted explicit instructions from the U.S. Bishops' Conference and directives from the Vatican, and ignored "hints" from prominent Catholics and petitions from concerned students, faculty, alumni, and friends of the University in extending an invitation to Mr. Obama to speak at this year's Commencement. This is, rather, another attempt to reach the powers-that-be in Ireland and alert them to the possibilities offered by Capital Homesteading and the Just Third Way for solving the current economic crisis. This is a slightly edited version of a letter we sent to Dr. Alan Barrett of the Economic and Social Research Institute (ESRI) in Dublin, www.esri.ie, the leading think tank in Éire.
Dear Dr. Barrett:
The article in yesterday's Irish Independent, prepared from a review provided by your organization ("Republic's Economy is Fastest Shrinking in Developed World") gives a much-needed warning about the direction in which the current economic crisis is leading not only Ireland, but the world. Paradoxically, your statement quoted at the end of the article to the effect that it is too early to decide whether the proposed measures will be adequate suggests that there is hope — if only because what you said indicates a certain openness of mind to innovative solutions that are both financially feasible and ecologically sound.
In view of that, I would like briefly to introduce the work of the Center for Economic and Social Justice ("CESJ"), www.cesj.org, to you, and then suggest some possible areas of cooperation between your organization, and our all-volunteer think tank and its interfaith membership.
CESJ was founded in 1984 by a small group of Jews, Christians, Muslims, and others who came together on the basis of a set of shared values based on the natural law tradition of the west to promote the economic justice principles developed by Dr. Louis O. Kelso and Dr. Mortimer J. Adler, and the social doctrine of Pope Pius XI as analyzed by "America's greatest social philosopher," Father William J. Ferree, S.M., Ph.D., who was one of CESJ's co-founders.
Kelso and Adler's work is best set forth in the two books they co-authored, both with misleading titles but profound thought, The Capitalist Manifesto (1958) and The New Capitalists: A Proposal to Free Economic Growth from the Slavery of Savings (1961). Louis Kelso is best known as the inventor of the Employee Stock Ownership Plan ("ESOP"), a financing vehicle that has resulted in more than 11 million workers becoming part owners of the more than 11,000 companies for which they work. Mortimer Adler, as you are probably aware, designed the "Great Books" program at the University of Chicago, Illinois, and was considered the premier American Aristotelian of the 20th century.
Father Ferree was, at different times, president of Chaminade College in Honolulu, Hawaii, Rector of the Catholic University of Puerto Rico, and Chairman of Dayton University. His most important work was his doctoral thesis, The Act of Social Justice (1941) in which he explained Pope Pius XI's revolutionary breakthrough in the field of social morality. At the time of his death in 1985, Father Ferree was hard at work on a new book intended to integrate the economic justice principles developed by Kelso and Adler into the social teachings of the Catholic Church.
After reviewing the work of your institute as described on your website, I believe that an approach CESJ calls, "The Just Third Way," especially as embodied in our "Capital Homesteading" proposal, might have much to offer you. In particular, we have specific proposals designed to address the problem areas targeted in the article in the Irish Independent:
Unemployment. Demand for capital and labor follows increased consumer demand. Economic growth and thus job creation thus results from increases in consumer spending, as Dr. Harold Moulton demonstrated in his 1935 monograph, The Formation of Capital. Consistent with "Say's Law of Markets," which states that production equals income, and thus supply generates its own demand, and demand generates its own supply, the Just Third Way addresses the problem of unemployment by opening up democratic access to capital credit for new, financially feasible investment. As new capital is formed and financed in ways that allow first the workers, and then every citizen to share equitably in the ownership of the new capital, jobs are created first to produce the capital, then to supply labor for the new or expanded productive enterprise. The wages paid during this process increases consumer demand, which leads to additional new capital formation and more job creation. Additionally, when companies can obtain financing for new capital by selling shares to the workers and other citizens instead of retaining earnings, all earnings above working capital needs can be paid out, further increasing consumption income and thus effective demand, once the workers and other citizens have paid for their shares out of dividends.
Housing. The Just Third Way would address the housing and building trades crisis with a new ownership/financing vehicle called the "Homeowners' Equity Corporation" ("HEC"). A HEC is a proposed for-profit stock corporation whose shareholders would be homeowners in danger of foreclosure. HECs — and there should be many, to provide redundancy, lower risk, and ensure competition in a community — would purchase distressed properties at the current market value. HECs would obtain acquisition loans from commercial banks, which in turn would discount the loans at the central bank at a rate reflecting transaction costs and a revised risk premium. The homes could then be leased at a realistic market rate to their former owners or new tenants. The tenant would earn shares in the HEC as lease payments were made sufficient to cover debt service, maintenance, and taxes. When the acquisition loan for a particular property was fully paid, the tenant could exchange his or her HEC shares for title, or continue as a tenant/shareholder at a reduced lease payment, sufficient to cover maintenance and property taxes. Financing the purchase of properties through the central bank and its member banks would cost the taxpayer nothing and be the first step in restoring a currency backed by hard assets instead of government debt.
Deflation. The Just Third Way addresses the twin evils of inflation and deflation by the same method. In classic banking theory, money can be created at will without inflation if (and only if) the money is used to finance capital projects that pay for themselves out of their own future earnings. Because money can be created through the banking system and backed up by the central bank for as many financially feasible projects as are brought to commercial banks for financing, there is no danger of deflation. Because the money created for capital investment is canceled once the loan by means of which the money was created is repaid, there is no danger of inflation. There is always enough money, and the price level remains stable. The need to accumulate savings to use as collateral is eliminated by using capital credit insurance, backed up by a capital credit reinsurance pool to spread risk even further, instead of concentrating the risk in individual borrowers, lending institutions, or the State.
Government debt. The Just Third Way's Capital Homesteading proposal includes a complete reform of a nation's tax system. Much of the complexity found in the tax systems of many countries results from the basic assumption of Keynesian economics that capital formation cannot be financed except out of accumulated savings. While Keynes' assumption contradicts classic banking theory as well as historical fact analyzed by Dr. Harold Moulton, the world's tax systems reflect the presumed necessity of favoring the wealthy in order to induce them to save and reinvest their income to finance capital formation and thereby create jobs. This greatly reduces consumption income, and the government inflates the currency to increase effective demand so that "excess" production can be cleared. This lays the foundation of the erroneous Keynesian belief that there is a necessary trade-off between inflation and unemployment. This also greatly reduces the tax base, forcing the government to borrow both to meet its expenditures as well as to cause inflation to increase consumption and maintain the desired number of jobs artificially. Without the need to reduce the tax base by favoring the rich or make up for the decrease in effective demand by inflating the currency through government borrowing, the State can begin following sound, non-politically motivated monetary and fiscal policies and begin paying down debt without risking the harm that Keynes was convinced would result.
If these brief descriptions of some of our proposals intrigue you, I invite you to pay a visit to the CESJ website, www.cesj.org. I would draw your particular attention to the free download available of our book, Capital Homesteading for Every Citizen, as well as the paper on the HEC. If you have any questions, or if you would like to discuss anything on the website or grounds for possible future collaboration, you will want to make contact with Dr. Norman G. Kurland, president of CESJ. Dr. Kurland can be reached via e-mail telephone using the information given on the website.
Dr. Kurland's concern for justice for the poor has been evident since his work in the Civil Rights movement in the American south in the early 1960s, continuing through his collaboration with the late labor statesman Walter Reuther of the United Auto Workers in Reuther's "Citizens' Crusade Against Poverty." Later, Dr. Kurland was instrumental in persuading the late Senator Russell Long of Louisiana to champion the Employee Stock Ownership Plan ("ESOP") invented by Louis Kelso.
Dr. Kurland also served as Deputy Chairman for the Presidential Task Force on Project Economic Justice under President Ronald Reagan, and presented the report on CESJ's efforts to promote economic and social justice in a 1987 private audience with His Holiness Pope John Paul II, more fully described in CESJ's "accomplishments brochure." Most recently, Dr. Kurland has developed the concept of the "Natural Resource Bank" which would have the capacity to vest all inhabitants of a region with a direct, definable private property stake in the land and natural resources. Dr. Kurland was also influential in developing the HEC, described above.
Thank you. We look forward to hearing from you.