So far in this
series we’ve seen how past savings enslaves, and we’ve mentioned how future
savings emancipates — but we didn’t say how
future savings does the trick. It’s all
very well for a magician not to reveal his secrets, but a financial wizard who
is interested in economic democracy had better be a little more forthcoming . .
. especially when the “secret” is how to turn non-owners into owners without
harming existing owners.
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| "My hands never leave my wrists, or my cash leave my wallet." |
It’s not all
that hard, although that doesn’t mean it’s easy. Basically, “all you have to do” is switch
from past savings to future savings, that is, from financing with what you’ve
withheld from consumption in the past, to financing with the present value of
what you reasonably expect to produce in the future. That way, you’re not taking anything out of
anyone’s pocket now, and anybody who comes up with a financially feasible
project should be able to get financing for it.
An added benefit
is a complete change in how the amount of money to be added to the economy gets
determined. As it now stands, somebody
in a government office somewhere decides that we need, say, 1% growth in the
coming quarter. To do that, the
estimates are that $1 crunchzillion in new money must flow into the economy, of
which $572 velzillion will come from existing savings, $398 wadrillion from new
government debt, and the rest from the operation of the Keynesian money
multiplier.
 |
| Richard Kahn, First Baron Kahn (1905-1989) |
Or so the
experts hope. Of course, the fact that
existing savings are, in general, already invested (it’s just a matter of where
you stand whether something is savings or investment), non-productive credit is
a really, really, really bad way to
finance anything, and Baron Kahn's Keynesian money multiplier was proven by Dr. Harold G. Moulton of the Brookings Institution to be a big,
steaming load of hooey within a year of its publication, means
that it’s only by chance that the amount of money created and the needs of the
economy are in sync, but so what? If
you didn’t create enough, government just goes deeper into debt, and if there’s
too much, you tax it away — that’s called “Modern Monetary Theory.” It’s why government debt has mushroomed since
the powers-that-be started listening to Lord Keynes. For some reason money collected in taxes
never seems to get cancelled, just spent, adding to the problem.
Now, what
happens in the Just Third Way scenario, in which money is created ONLY in response
to financially feasible private sector projects, and governments can’t create
money and are forced to live within their means, except for short-term
borrowing from existing pools of savings?
First off, the
only estimate that’s made is how much new capital formation will take place in
the coming quarter. If the estimate is
too big, reduce the next estimate. Too
small? Increase the next quarter.
This is possible
because (hold your breath) no new money
is or can be created until and unless a financially feasible project is brought
to a commercial bank for financing.
The money supply does not increase except when there is a specific use
for that specific new money. No “print
it and they will invest.” No “we ‘need’
237% inflation or there won’t be enough money for investment.”
 |
| Kelso: You can finance growth with future savings. |
Forget all that,
and keep this in mind: no new money is or can be created until
and unless a financially feasible project is brought to a commercial bank for
financing. We can scream
that at you if you like, but if you haven’t caught on by now that no new money is or can be created until and
unless a financially feasible project is brought to a commercial bank for
financing, you’re not likely to get the idea by raising the decibel level.
The first big
advantage, the Number One benefit to this is (have you guessed?) it allows you
to finance new capital formation without using past savings. And “past savings” are, by definition, a
virtual monopoly of the rich.
Can you put two
and two together and make four? Test
yourself by following this logic: if you can finance new capital formation
without using past savings, that means you don’t need to be rich in order to
become an owner of productive capital . . . and that means that every child,
woman, and man — regardless whether she, he, or it has savings now — can use
“future savings” to become an owner without taking anything away from “the
rich.”
 |
| "Our fable tonight, kiddies, is the money multiplier." |
Another
benefit? When everybody is a capital
owner, and nobody needs to set aside savings to finance future new capital, you
only need to produce enough to consume.
No deliberate waste just to generate savings. No promotion of consumerism to encourage
people to buy what they don’t need, going into debt to do it, just to generate
profits and thus savings. No “make work”
jobs just to generate income to keep up consumption levels so that new capital
can be feasible (profitable).
And — everything
else being equal — there would be no inflation or deflation. Instead, your dollar would always be worth a
dollar, and probably buy more as technology becomes increasingly productive,
giving the owners more money to spend on consumption naturally, not
artificially.
In short, there
would always be exactly the right amount of money in the economy without
playing guessing games or having the government spend, spend, spend.
In other words,
we can now answer the question, Do we need the rich? by saying, Sure, we
do. We need the rich the same way we
need everyone else. No man is an island,
etc.
What we don’t
need is the money of the rich. That they
can keep for themselves . . . or, better, spend it and have some fun, doing
good by creating demand for goods and services that the rest of us can make a
profit supplying, thereby optimizing our chances for an adequate and secure
income from both labor and capital.
So what are the
mechanics of all this? We’ll look at
that on Monday.
#30#
