In yesterday’s posting we saw that the United States could
easily go the way of ancient Rome. No,
really. If we really understand that
Rome didn’t really “fall,” but slowly decayed and transformed into the Medieval
world as conventional government spent itself into oblivion trying to meet
every need, and then the modern world (where governments are spending
themselves into bankruptcy trying to meet every need), it becomes
comprehensible.
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| The "Fall" of Rome |
Eschewing the turgid and self-interested (not to say
anti-Christian) analysis of Edward Gibbon in favor of J. B. Bury or Theodore
Momsen (or even, gasp, original source documents), we realize that common
conceptions of what happened are, more often, misconceptions. We don’t
have to accept them.
Similarly, to address the problems of today, we can accept
the usual fallacies that those in power put forward to justify what they are
going to do anyway. That, or we can
consider some truly innovative solutions to turn what Pope Leo XIII called “new
things” in his landmark encyclical, Rerum
Novarum.
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| Author of Rerum Novarum |
Take, for instance, the problem of decaying
infrastructure. As we related yesterday,
we can let the rich take over financing new infrastructure and, eventually,
become the owners and local rulers in a new feudalism.
We could, as an alternative, figure out a way to bolster tax
revenues so that the government can once again afford to carry out what many
consider its proper function: providing goods that individual citizens cannot
ordinarily afford themselves.
Or we could do something new and innovative to address an
old and recurring problem. Since
infrastructure is intended to provide a good for the public, why not figure out
a way that the public can finance infrastructure and, being the financing
source, become the direct and equal owners of all public land and
infrastructure?
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| Rebuilding Infrastructure |
This can be done through a vehicle called the “Citizens Land
Bank,” or “CLB” for short.
A CLB has the potential to solve a number of problems caused
by insufficient State revenue from taxes, or relying on the rich to carry out
the functions of government. For one, it
employs advanced techniques of corporate finance. This frees financing from the “slavery of
past savings,” and thus dependence on a tax system that in turn relies on
people being able to pay their taxes out of past savings.
The idea of the CLB is simple. Although the State can own infrastructure and
land on behalf of the people, wouldn’t it be better if people could own the
same thing on their own behalf? Of
course it is. The problem is how to do
it when ordinary people don’t have the money to buy it.
As to how everyone instead of the State can own land and
infrastructure, that’s easy to answer.
The corporate form of ownership was specifically designed for many
people to own a single thing.
It is irrelevant how many people own a corporation. If you want a lot of people to own the
corporation, simply issue more shares.
If you want fewer people to own the corporation, either don’t issue as
many shares, or buy back shares that have already been issued.
The big problem is how people who do not have the ability to
save out of what is already in many circumstances an inadequate income are to
purchase shares, that is, capital. This is especially the case with
infrastructure, typically a very expensive proposition.
The answer is not through past savings, which are by definition a monopoly of the rich, but
through future savings. Future savings are based on making a promise
to repay a loan now out of profits to be generated in the future.
By making such a promise, it is not necessary to cut
consumption in the past to accumulate savings.
It is possible to save by increasing production in the future. Turning production in the future into money
now is what commercial banks were invented to do.
By having commercial banks backed up by the central bank
create money for productive purposes, anybody who can demonstrate a reasonable
possibility of repaying a loan out of future profits can become an owner of
capital without having to cut consumption or decrease current income. By using the corporate form of business
organization, especially when limited liability is included, people without
savings need not risk current income or whatever pittance they have managed to
accumulate.
Combining the corporation with future savings shows us how
to finance all new capital as well as infrastructure without having to rely on
the rich or the State for anything except their acquiescence. Traditional corporate finance always uses
future savings, for no businessman will finance new capital unless it can pay
for itself within a reasonable period of time.
When capital can pay for itself, of course, it is
unnecessary to cut consumption in the past to pay for the capital. It is only necessary to increase production
in the future.
This is the way the rich have traditionally financed new
capital. That being the case, why can’t
ordinary people?
Why can’t they? The
fact is, they can. It is only necessary
that the capital be able to pay for itself out of future profits.
Infrastructure can pay for itself if, instead of relying on
taxing everybody to pay for infrastructure, only the people who use the
infrastructure are “taxed.” By shifting
from general taxation to particular user fees, infrastructure can be made as
“inherently financeable” as any other form of capital — and be more fair in who
pays for it.
For ordinary people to own infrastructure, then, it is only
necessary to set up a for-profit corporation, and issue a single no-cost,
non-transferable, voting, and fully participating share to every man, woman,
and child in an area. The infrastructure
can be financed by expanding commercial bank credit and rediscounting the paper
at the Federal Reserve.
In this way the currency would be backed by revenue-generating
infrastructure instead of a vague government promise to pay out of taxes that
might never materialize. The loans used
to finance the infrastructure would be repaid by user fees instead of general
taxation. After the loans were repaid,
the shareholders — the public — would receive income in the form of dividends.
Why, then, wait for the State to finance infrastructure,
which it has already indicated it does not have the money or the tax base to
do, or the rich, who will use their position to take over control of the
government? Wouldn’t it be better to use
advanced techniques of corporate finance to everyone’s advantage, rebuild
infrastructure in a way that benefits everyone, and makes every citizen an
owner?