Yesterday we
looked at a few problems with Harold G. Moulton’s vision of the future. They were not very important, and are easily
corrected simply by adding expanded capital ownership along the lines developed
by Louis O. Kelso and Mortimer J. Adler.
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| Labor Theory of Value |
Today we
conclude by getting to Moulton’s main point, and his importance to the Just
Third Way. Unfortunately, this is not
explicit in the article from 1949, but it is essential if the article is even
to make any sense.
Of course,
another caveat must be issued. The final
part of the article assumes the validity of the labor theory of value, which we
know is not correct. Fortunately,
however, the labor theory of value is incidental to the main point Moulton was
making, even if it isn’t immediately obvious:
What the good
doctor is saying is simply that, before wealth can be shared, it first must be
created. And in our economy, the
production of goods and services is our wealth.
It doesn’t solve
our problem to say that, because a certain corporation is making big profits,
it should raise wages. Or, that it
should distribute its gains in lower prices, so as to increase purchasing
power.
Dr. Moulton says
we can do both, and still provide enough more in profits to make it attractive
to industry.
In his projections
for the future, Dr. Moulton says we need continuing increases in productivity,
development of new tools, willingness of labor to use more efficient methods
and adequate incentives (pay and benefits).
His arguments seem
all the sounder because they cut across the conventional divisions of
thought. Like labor, he favors a progressive
expansion of mass purchasing power. Like
business, he wants “at least a fair degree of assurance” with respect to the
perpetuity of the private enterprise system.
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| Keynes: "You can't form capital without past savings" |
Did you see the
point? It’s that enterprises can make
big profits and at the same time pay higher wages and lower prices — an
impossibility in Keynesian economics.
It makes
perfect sense in Moulton’s paradigm, however, because Keynes took for granted
the very thing that Moulton proved was wrong in The Formation of Capital (1935).
That is, Keynes believed that if you paid high wages, then you must
raise prices because the only source for financing new capital is retained
earnings, i.e., earnings that are
neither paid out to the workers as wages or profit sharing, nor distributed to
the shareholders in the form of dividends.
Moulton
believed that financing for new capital formation came not from past savings
(retained earnings), but future savings, i.e.,
future anticipated profits that can be turned into money now by the expansion
of bank credit, and then repaid out of the future profits of the new capital
that was financed. In other words, new
capital can be “self-financing,” paying for itself without the need to restrict
consumption, raise prices, or keep down the cost of wages and benefits.
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| Kelso: "Dear John, You're talking through your hat." |
And there’s the
problem. If a company increases wages,
it increases the costs of production. It
might not at first, if the company has a large accumulation of profits, but
wages and benefits are easier to raise than to lower. If the company has contracted for higher
wages, and profits fall, it has to increase sales or raise prices to the
consumer, which reduces mass purchasing power.
Making workers
into part owners as Kelso proposed, however, gets around this problem,
especially if dividends are tax deductible at the corporate level. This not only generates mass purchasing
power, keeps prices and costs down, and is a free market way to increase
income, it gives workers true, direct production-based incentives to work
better and more efficiently — regardless whether it’s the labor or the capital
that’s responsible for production. After
all, in the Kelso paradigm, it doesn’t matter which does the actual production
as long as the worker-owner owns both labor and capital.
The importance
of Moulton to the Just Third Way, then, is not his theory of labor. It’s that he answers the question that pops
into most people’s heads when they first hear about this: “Where’s the money to
come from?” Where? From the capital itself.
#30#
