A while back, say, a century or so, Judge Peter S. Grosscup
of the U.S. Seventh Circuit Court of Appeals published an article with the
title, “Who Shall Own America?” (American
Illustrated Magazine, December 1905).
A few weeks ago the “Mensa Weekly Brainwave” sent around a link to an
article in the MIT Technology Review,
“Who
Will Own the Robots?”.
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| English majors. |
Now, let’s not get into whether “shall” or “will” is
correct. We’ll leave that to the
unemployed English majors. What we’re
concerned with today are the unemployed workers being displaced by robots at an
increasing rate. The English majors can
start panicking when computers can write novels as good as today’s usual
offerings . . . .
Okay, English majors, you can panic, but our point is still
the same: not necessarily who will (or shall), but who should own the instruments producing today’s marketable goods and
services?
Thus, it’s good to see that MIT finally asked the question
Louis Kelso and Mortimer Adler answered more than half a century ago in their
books, The Capitalist Manifesto
(1958) and The New Capitalists
(1961). And that is, How are people without existing savings or the
ability to restrict consumption to be empowered to purchase the capital that is
making their labor redundant and driving down wages?
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| Captain Future (Savings), DOLLar, & Debt Blob Monster |
The answer? By
financing the acquisition of new capital with “future savings.”
And what are future savings?
Future savings are (is? English
majooooooor! Help!) the present value of
future increases in production, turned into money now. Future savings can be used to purchase the
very capital that will generate the future increases in production . . . making
it a very neat system, if you think about it.
Once the capital becomes profitable, a portion of the
profits resulting from the sale of the marketable goods and services produced
can be used to repay the money, plus a fee for the use of the money. Repaying the loan cancels the money and takes
it out of circulation, while the fee represents revenue for the lender out of
which he pays his costs and takes his profit.
Now, we know what you’re going to say, because if you’ve
been keeping track, you have a very good question: If all new money is created
only to finance new capital, and the loan plus a fee is repaid to the lender,
isn’t the amount of money in the economy going to be decreasing all the
time? Aren’t you going to run out of
money?
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| "And for my next number, 'Own Me or I'll Own YOU!" |
Good point. The first
part of the answer is that if you read that very
closely, what we said was that all new money based on future savings should
only be used to finance new capital. We
didn’t say a word about new money created based on past savings, that is, on
existing inventories of marketable goods and services.
(That raises a question that sometimes bothers us: exactly
what is an existing inventory of a
service? A contract to perform a service
in the future would fall under future savings, wouldn’t it? Should we drop the “and services” when
referring to past savings? Or do we
construe the entire phrase as if it were one word? Maybe we should ask the unemployed English
majors again. These are tough questions. Maybe we should just say “existing
inventories,” without saying whether they are goods or services.)
The second part of the answer is that, given a feasible
capital project, you always produce more than enough to repay the loan, the
fee, and have a profit for yourself after meeting the costs of production to
meet your consumption needs. The money
from the future savings, however, is only enough to cover the loan principal —
the present value of the amount borrowed, which is how much money was created. Where does the other money come from?
If there is an existing inventory of something, there is
something that can be turned into money.
Technically, money based on future savings is called a bill of
exchange. Money based on past savings is
called a mortgage.
Even more technically, you’re not really creating money when you mortgage something. Rather, you’re changing from one form of
money (inventories for trade) to another form of money (a contract backed by
the inventories). Combining both kinds
of money creation — and not allowing any other kind — ensures that the money
supply is asset-backed and “elastic,” meaning there is always the right amount
of money in the economy.
The big benefit is that shifting from past to future savings
as the source for financing new capital formation frees economic growth from
the constraints of the past. Instead of
the rate of economic growth being limited by what has been withheld from
consumption in the past, it is determined by what can be produced in the
future.
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| Without capital credit, resistance is futile. |
With respect to the question, “Who Will Own the Robots?”, it
also makes it possible to turn people who otherwise lack the power to become
owners of capital because they don’t have the ability to withhold the required
amounts from consumption and thereby accumulate past savings. Capital ownership need no longer be
concentrated.
This is why Kelso and Adler subtitled their second book, The New Capitalists, “A Proposal to Free
Economic Growth from the Slavery of Savings,” meaning past savings, not future
savings. Kelso and Adler’s proposal was based on the work of Dr. Harold G.
Moulton, president of the Brookings Institution from 1928 to 1952 presented in
his 1935 work refuting the Keynesian New Deal, The
Formation of Capital.
By advocating that all new capital formation be financed
with new money created backed by the present value of the future increases of
production — the inherent feasibility of the capital itself — and repaid (and
the money cancelled) out of future profits of the capital, and replacing
traditional forms of collateral with capital credit insurance and reinsurance,
it is possible for anyone to own capital without redistributing what already
belongs to others. More about this can
be found on the website of the Center for Economic and Social Justice (CESJ)
under the heading “Capital
Homesteading.”
