Tuesday, January 24, 2017

The Problem of Wealth, IV: The Just Third Way Solution


The problem as Louis O. Kelso saw it was that technology was becoming so productive and cost-effective that it was rapidly displacing labor from the production process.  Aside from all the other problems this caused, this meant that people who formerly were able to gain an adequate income from selling their labor were no longer able to do so.
Cobbett: "If you have not property, you are a slave."
The solution to both the political and economic problems associated with the decrease in the value of labor relative to technology has been known for centuries: widespread ownership of the technology that is displacing labor.  And because (as Daniel Webster pointed out), “Power naturally and necessarily follows property,” people secure their personal sovereignty and economic independence at one and the same time.  As William Cobbett, “the Apostle of Distributism” declared,
FREEDOM is not an empty sound; it is not an abstract idea; it is not a thing that nobody can feel. It means, and it means nothing else, the full and quiet enjoyment of your own property. If you have not this; if this be not well secured to you, you may call yourself what you will, but you are a slave. . . . You may twist the word freedom as long you please; but, at last, it comes to quiet enjoyment of your property, or it comes to nothing. Why do men want any of those things that are called political rights and privileges? Why do they, for instance, want to vote at elections for members of Parliament? Oh! because they shall then have an influence over the conduct of those members. And of what use is that? Oh! then they will prevent the members from doing wrong. What wrong? Why, imposing taxes that ought not to be paid. That is all; that is the use, and the only use, of any right or privilege that men in general can have.  (William Cobbett, A History of the Protestant Reformation in England and Ireland, 1827, § 456.)
Leo XIII: "As many people as possible should own."
To drive home the point, the program that Pope Leo XIII recommended in his landmark encyclical on capital and labor to remedy the problems brought about by the “new things” of the modern world, e.g., socialism, growing intrusion of the State into personal life, decay of parental authority over children’s education, lack of adequate income, etc., etc., etc., so on, so forth, ad infinitum, was . . . (you guessed it) expanded capital ownership!  As he explained,
We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners.  (Rerum Novarum, § 46.)
There was just one picayune problem with the prudent pontiff’s proposal.  That is the pecuniary points that presumed past piles of pazoozas.  As he said,
If a workman's wages be sufficient to enable him comfortably to support himself, his wife, and his children, he will find it easy, if he be a sensible man, to practice thrift, and he will not fail, by cutting down expenses, to put by some little savings and thus secure a modest source of income.  (Ibid.)
You can see the Catch-22 immediately.  How, if a worker can’t even get a job after having been displaced by technology, is he or she supposed to be able to “practice thrift” . . . especially with the incredible cost of technology?  The cost of modern advanced technology, even in the nineteenth century, is far beyond what most people can afford to save, except for the very rich.
Kelso: "The rich buy capital on credit, and so should the non-rich."
Working on the problem, Kelso realized that the rich didn’t get to be rich in most cases by first saving, then buying new capital.  Nor did they use other people’s money.  Most of them didn’t even steal surplus value from the workers.
How did they do it?  In almost every case, people became rich by purchasing on credit capital that paid for itself out of its own future profits, and thereafter provided income for the owner.
Of course, once the rich built up so great an accumulation of capital that they couldn’t spend it all, they necessarily reinvested the surplus.  This gave the rich a double-barrel of capital accumulation: buying capital on credit that pays for itself, and piling up even more by using excess income to buy even more capital.
We can understand how, after a certain critical mass is reached, someone’s capital accumulation grows so fast that not even the government can tax it away fast enough for redistribution to keep up demand for the goods and services being produced.  You have tremendous productive capacity alongside rock-bottom consumptive capacity.
So what does the government do?  They can’t tax the excess consumption capacity away from the rich in sufficient quantities — there’s some quasi-law of taxation somewhere that says it’s almost impossible to tax more than 20% of GDP and sustain it at that level.  Instead, governments start to print money, employing the hidden tax of inflation to redistribute what the direct taxes can’t confiscate.
Thus, the modern Welfare State has a two-fold problem.  It can’t tax enough, and if it prints too much money, it implodes.  What to do?
As Kelso figured, the answer is obvious.  If the rich became rich by buying new capital on credit and paying for it out of the profits of the capital itself, why can’t the non-rich do the same thing?
The answer is, they can — and it’s detailed in the Capital Homesteading proposal of the Center for Economic and Social Justice (CESJ).
#30#

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