We’ve been having
a sporadic series of postings addressing President Trump’s proposed tariffs,
starting with “The
Two-Part Tariff Question” and continuing with “Is
There an Alternative to Tariffs?” At
the end of the latter we concluded, “[T]here is clearly an alternative to
tariffs . . . but only if you agree that the sole purpose of taxation is to
fund government. If you’re worried about
other goals, however, is there a way to achieve them in a less harmful (or even
beneficial) way?” and promised to look into that in the next posting in the
series.
First, let’s look
at the problem President Trump is trying to solve: foreign trade policies that
harm the U.S. economy. From our previous
discussion, we realized that using the tax system for anything except to raise
money to fund legitimate government operations is not usually a good idea. It may be necessary as a short-term
expedient, but it is never a solution — and Mr. Trump seems to be pushing his
program as a solution, not as a stopgap on the way to a solution.
What is the real
solution? Make U.S. industry and
commerce more efficient than that of other countries, especially in key
products affecting national security, notably food, fuel, and fiber. That is, the U.S. needs to produce what it
needs at a higher quality and a lower cost than what it would have to pay to
obtain it from other countries . . . without
manipulating the cost by subsidizing domestic products or taxing foreign
products.
Again, a subsidy
or tariff may be necessary at times as an expedient, but these are not
solutions. Both are signs that something
is wrong in the economy and needs to be fixed.
The question then
becomes how to fix the U.S. economy (or any economy, for that matter) so that
it operates for the benefit of all Americans, not just a private sector
capitalist or public sector bureaucratic élite.
And that means
the Just Third Way as applied in a “Capital Homestead Act.” And what is a “Capital Homestead Act”?
A Capital
Homestead Act would be a comprehensive legislative program of
Kelsonian tax, monetary, and fiscal reforms to make every citizen a shareholder
in the technological frontier. It is intended to connect every person to the
global economy as a fully empowered participant and owner of new technologies,
by dismantling structural barriers in our basic institutions and financing
capital formation through ownership democratization vehicles.
This economic
agenda for the twenty-first century provides a blueprint for leaders committed
to restructuring the legal and financial system to grow the economy at maximum
rates with no inflation, in ways that build a Just Third Way version of
economic democracy as the essential foundation for effective political
democracy.
Capital
Homesteading for every citizen offers a private property and free
market-oriented alternative for saving the Social Security System as a national
retirement income security plan. At the same time, the Capital Homestead
Act offers a new national policy to foster life-long “capital
self-sufficiency” as a means to achieve true economic independence for all
Americans. If implemented, capital ownership would be systematically
deconcentrated and made directly accessible to every person, without reducing
property rights of the wealthy.
There are four
key areas that need to be reformed in order to eliminate the need for
artificial government supports of any kind for the economy or the political
system dependent on the economic system.
These are:
·
Monetary
and Credit Reform
·
Tax
Reform
·
Inheritance
and Gift Tax Reform
·
Economic
Empowerment Vehicles
Today we will
look at the monetary and credit reform proposals of the Just Third Way under a
Capital Homestead Act.
Through the
Capital Homestead Act, access to asset-backed money and capital credit — which
today helps make the rich richer — would be enshrined in law as a fundamental
right of citizenship, like the right to vote.
Using its powers
under Sec. 13, para. 2 of the Federal Reserve Act, the Federal Reserve System
would stop monetizing government debt and use its power to monetize the new
capital private sector businesses need to grow.
This would create a currency backed by private sector hard assets over
time to replace the current money supply backed by government debt and
eventually eliminate all non-productive government money creation. The government would still be able to borrow,
of course, but it would be restricted to borrowing out of existing
accumulations, just as the framers of the Constitution intended.
It is important
to note that the Federal Reserve would not create any new money for private
sector investment except in response
to properly vetted proposals offered to and accepted by commercial banks. The money supply would thereby be matched
exactly to what is needed for specific new capital formation, not some
politician’s guess as to how much the economy is to be permitted to grow. Actual growth, not hoped-for growth would be
monetized, avoiding both inflation and deflation.
Given the nature
of corporate finance, however, there would be “currency appreciation.” That is, businesses always try to finance new
capital at the lowest possible price and using a “worst case scenario” so that
they don’t go bankrupt if everything goes wrong. They then work like crazy (especially if the
workers are owners) to make the “best case scenario” happen.
The result? More goods are produced at a higher quality
and a lower cost. Profits go up, prices
go down, and everybody’s money is worth more because it will buy more.
If more money is
needed, then the Federal Reserve already has the power to create money to
purchase securities representing existing assets (such as inventories of goods),
which can be cancelled as the goods are sold and the securities redeemed by the
issuer (the owner(s)) of the inventories of goods.
Again, there is
neither inflation nor deflation because money is created only in response to
existing things of value, whether it’s a contract for new capital (all contracts have value because they
wouldn’t otherwise be contracts!) or a contract for existing inventories. Money would be created as needed and
cancelled when the loans that create it are repaid.
To ensure that
the income generated by the new capital is spent on consumption instead of
being reinvested in more new capital (after all, why save to invest when you
can borrow to invest, then repay the loan and save for future consumption?) it
should be broadly owned — which we’ll look at next time.
The bottom line
today is that through a well-regulated central banking system and other
safeguards (including capital credit insurance to cover the risk of bad loans),
all citizens could purchase with interest-free capital credit, newly issued
shares representing newly added machines and structures. These purchases would be paid off with
tax-deductible dividends of these companies. Nothing would come out of anyone’s
pocket or reduce the income they use to put food on their family’s table.
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