The assumption that the only way to finance new capital formation is to cut consumption and accumulate money savings, and the belief that labor alone is responsible for all production are, as we saw last week, responsible for much of the moral, political and economic confusion in the world today, and for much of the social chaos as well.
The solution is, paradoxically, rather simple. It is, however, far from easy: restore political power by restoring economic power, and restore economic power by vesting each child, woman and man with direct ownership of an adequate capital stake. Applied to the current debates over the HHS mandate, this solution has the potential to defuse the situation and reach a workable compromise that respects rights of conscience.
Two recent CESJ books, Supporting Life: The Case for a Pro-Life Economic Agenda (2010), and The Restoration of Property: A Reexamination of a Natural Right (2012), apply. Although both were written before the HHS mandate was even conceived, they relate directly to it.
The argument is simple. As necessary as are public demonstrations and court action, they are insufficient to bring about effective and lasting social change. For that, power must be returned to people. We try to avoid using the collective the people, although (perhaps paradoxically) we accept that fact that organized social action — liberty, or freedom of association/contract — by free people acting on the common good is the essence of social justice, as de Tocqueville hinted and Pius XI made clear.
What worries many politicians and upsets most academic economists, however, is the fact that the only way to vest every child, woman, and man with meaningful and sustainable power is through direct ownership of capital. As Daniel Webster observed, "Power naturally and necessarily follows property."
Widespread capital ownership, however, is impossible within the prevailing economic paradigm. All three of today's mainstream schools of economics, the Chicago, the Austrian, but especially the Keynesian, take for granted that the only way to finance new capital formation is by cutting consumption and accumulating money savings.
As Dr. Harold Moulton proved in The Formation of Capital (1935), however, and as Adam Smith and Jean-Baptiste Say implied in their work, new capital formation not only can, but should be financed not with past reductions in consumption, but by future increases in production. That is, in fact, how the rich became rich. It was not by working harder and saving more, or even by stealing "surplus value" from workers and consumers.
Thus, instead of relying on the limited amount of financing made available by refraining from consumption — thereby reducing effective demand and the financial feasibility of future capital — the founders of the great fortunes were able to turn the present value of the future stream of marketable goods and services into money. They then used that money to finance self-liquidating capital. In a sense, the rich didn't pay for the capital. Instead, the capital paid for itself — and the rich owned the capital.
What Louis Kelso and Mortimer Adler did in The Capitalist Manifesto (1958) and The New Capitalists (1961) was to apply Smith's, Say's and Moulton's understanding of this classic "banking principle" (Say's Law of Markets applied in the "real bills doctrine") to the problem of how to finance widespread ownership of capital without redistribution of existing wealth or reducing consumption. The Pro-Life movement now has the opportunity to take Kelso and Adler's insights, and use them to obtain political power by regaining the economic power on which political power necessarily rests.
That is the message we tried to convey in both books, in general in The Restoration of Property, and applied to the Pro-Life movement in Supporting Life (the former was written before the latter, although only published this year). The social and judicial activism that now constitute virtually the entire focus of the Pro-Life movement, while absolutely essential — and should be increased — will ultimately be ineffective until and unless ordinary people are empowered economically, and thus politically, and that will never happen if we rely on State-supported or mandated wages, benefits — or healthcare.