The Right Way to Raise Wages (Not)

Today's Wall Street Journal carried an op-ed piece by a professor of economics at UCLA, "The Right Way to Raise Wages" (07/08/10, A17). Unfortunately, it took a while to track down contact information for the author. The Wall Street Journal, ordinarily so careful, gave the professor's name as "O'Hanian," which we naturally read as "O'Hanlon." The gentleman's name is "Ohanian."

Anyway, his proposal is to avoid using the State or the unions to coerce a rise in the wage level. (Agree.) Instead, Dr. Ohanian proposes increases in funding for education and job training to raise worker productivity. (Disagree.) A Kelsonian will instantly see the problem here. Human labor isn't responsible for increases in productivity. Human labor can't do any more than it could 50,000 years ago. Rather, increases in productivity come from advances in technology, not advances in human physiology . . . unless some of those science fiction stories we've been reading or viewing are true. (Well . . . even most of those rely on turning human beings into cyborgs by retrofitting them with advanced technology, e.g., Keith Laumer's A Plague of Demons (1965); any of the Robocop films, the Six Million Dollar Man television series, etc.)

The solution is not to distort distribution patterns even more and undermine the natural right of private property, but to spread out direct ownership of the means of production so that people can gain an adequate and secure income from both labor and capital. So we fired off a letter to Dr. Oharian:

Dear Dr. Ohanian:

After reading your op-ed piece in today's Wall Street Journal ("The Right Way to Raise Wages," WSJ, 07/08/10, A17) and looking up your webpage on the UCLA site, I thought you might be open to hearing about another alternative to union bargaining power as a means of raising wages and increasing effective demand. This can be found in the "Capital Homesteading" proposal by the Arlington, Virginia-based Center for Economic and Social Justice ("CESJ"), an application of the "Just Third Way" of economic and social development.

The Just Third Way is based on the "Binary Economics" of Louis O. Kelso and Mortimer J. Adler, detailed in the two books they co-authored, The Capitalist Manifesto (1958) and The New Capitalists (1961). The Just Third Way embodies the "Three Principles of Economic Justice," 1) Distribution, 2) Participation, and 3) Harmony, as well as the "Four Pillars of an Economically Just Society":

• A limited economic role for the State,

• Free and open markets as the best means for determining just wages, just prices, and just profits,

• Restoration of the rights of private property, especially in corporate equity, and (the "fatal omission" from every economy in the world today)

• Widespread direct ownership of the means of production.

As a means of raising wages naturally, without employing coercion by either the State or unions, this last is consistent with the observation by Alexis de Tocqueville in Democracy in America:

In France most of those who labor for hire in agriculture, are themselves owners of certain plots of ground, which just enable them to subsist without working for anyone else. When these laborers come to offer their services to a neighboring landowner or farmer, if he refuses them a certain rate of wages, they retire to their own small property and await another opportunity. ("Influence of Democracy on Wages," Democracy in America, II.vii.)

In other words, if we want wages to rise naturally, employers who currently have an effective monopoly over workers' incomes need a little free market competition instead of union or State coercive measures. Workers — everyone, in fact — should own a capital stake large enough to generate an adequate and secure income sufficient to meet common domestic needs adequately. Wages could then rise or fall to a level reflecting the true market value of the labor being purchased.

To open up democratic access to the means of acquiring and possessing private property in the means of production to people who lack existing accumulations of savings, Kelso "invented" the Employee Stock Ownership Plan, or "ESOP." The ESOP and similar vehicles, such as the proposed "Capital Homestead Account" (a sort of credit-financed "super" IRA), have the potential (as Kelso and Adler put it in the subtitle of The New Capitalists), to "Free Economic Growth from the Slavery of Savings."

By "slavery of savings," Kelso and Adler do not reject the necessity of savings to finance capital formation. On the contrary, what they reject is the disproved dogma, rooted in the tenets of the British Currency School and finding its fullest development in Georg Knapp's "Chartalism," that "saving" necessarily means cutting consumption.

This blind subservience to past savings, while embodied in U.S. tax law, as well as Federal Reserve and federal government monetary and fiscal policy, was completely disproved by Dr. Harold G. Moulton, president of the Brookings Institution from 1916 to 1952. Among other works, Moulton published The Formation of Capital in 1935, the third volume in a four-part series presenting an alternative to the Keynesian New Deal to provide a framework for formulating an economic recovery program.

Before the end of next week we expect to have our new edition of The Formation of Capital (republished with the generous permission of the Brookings Institution) ready for submission to the printer. This edition features a new foreword by Dr. Norman G. Kurland, president of CESJ, explaining the importance of Moulton's work, both in countering today's unquestioned Keynesian policy assumptions, and — more importantly in the long-run — in demonstrating that ordinary people can (and should) become owners of significant capital stakes by using future rather than past savings.

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