Sometimes we’re tempted to paraphrase Vince Lombardi (even if he didn’t actually say it) and say that money isn’t everything, it’s the only thing. We’d be completely wrong, of course, but money — properly understood — is such a key element of any economy that it’s easy to make that kind of mistake.
As we saw in the previous posting on this subject, there was something missing from papal recommendations for expanded capital ownership, and because it was such a significant omission, it allowed both capitalists and socialists to completely ignore the main programmatic point of the social encyclicals, which is to enhance the dignity of each human person, primarily through widespread ownership of the means of production.
That omission was the need to have a viable and democratically accessible means of financing widespread ownership that did not take anything away from anybody else. Without a financially feasible and fair means of acquiring and possessing private property in capital, even the best programs will not work, or at least will not work as intended.
Take, for example, Abraham Lincoln’s 1862 Homestead Act, and the efforts of Judge Peter Stenger Grosscup in the early twentieth century.
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| Pope Leo XIII |
Tens of thousands of people took advantage of the Homestead Act. Although such programs and proposals as the New Deal, China’s Belt and Road program, and — of course — the Great Reset have been described by fans and supporters as the greatest economic initiative(s) in history, they all relied or will rely on taxation, massive government debt, or other forms of redistribution for funding. That, however, was precisely what Leo XIII warned against:
[The benefits of ownership] can be reckoned on only provided that a man’s means be not drained and exhausted by excessive taxation. The right to possess private property is derived from nature, not from man; and the State has the right to control its use in the interests of the public good alone, but by no means to absorb it altogether. The State would therefore be unjust and cruel if under the name of taxation it were to deprive the private owner of more than is fair. (Ibid.)
Setting aside the claims of Native Americans, the Homestead Act of 1862 did not rely on taxation or redistribution, at least of citizens or from taxpayers. The redistribution was from Native Americans and others, even if on questionable grounds.
That, however, is not the point. If you want a program of expanded ownership to succeed — and a personalist liberal democracy to be sustained — you cannot rely on existing accumulations of savings for financing initial acquisition or ongoing operations, nor on a limited asset like land if everyone is to have the opportunity to be an owner.
This is simple practicality. Those who are generally most in need of a program of expanded capital ownership are usually those least likely to have existing accumulations of savings, and the least likely to be able to save. Furthermore, if all the land is already owned by some people, there is nothing left for anyone else.
Lack of adequate financing inhibited the success of the Homestead Act, as it was during a period in which savings were being depleted and the currency deflated to restore the parity of the gold and silver currency with the paper currency. While the rich industrialists and railroads could create money through the commercial banks for capital expansion, small farmers and business operators were limited to the pool of rapidly shrinking existing accumulations of savings.
Homesteaders typically mortgaged their land to finance development and operations. They used “balloon financing,” meaning they paid only interest during the period of the loan, with all debt principal due at the end. When the principal came due, they usually refinanced with another balloon mortgage.
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| Frederick Jackson Turner |
In this way, people who ostensibly owned land or a business became de facto tenants-at-will. They could be evicted if they missed an interest payment, as the principal could be “called” — demanded immediately — when that happened.
Only the fact that most banks wanted their money and not the land kept foreclosures to a minimum, at least until the Great Depression and the inability of banks to continue carrying non-performing loans. Many institutions went bankrupt, anyway, as the bulk of their loans were to people who could no longer make payments and the land or business had become worthless.
Thus, the “slavery of savings” is not merely an inconvenience. It is a disaster, both economically and politically. As Frederick Jackson Turner pointed out in his “frontier thesis,” the end of “free land” under the Homestead Act meant the end of the uniquely American form of personalist liberal democracy. (Frederick Jackson Turner, “XVIII. — The Significance of the Frontier in American History,” Annual Report of the American Historical Association for the Year 1893. Washington, DC: Government Printing Office, 1894, 200.)
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| Judge Peter S. Grosscup |
Judge Grosscup ran up against the same brick wall of past savings. As one of Theodore Roosevelt’s “Trust Busters,” Grosscup was deeply involved in the progressive movement, when progressive meant something other than ultra-radical. He lobbied for reform of the 1890 Sherman Antitrust Act on the grounds that it was grossly inadequate to prevent corporate abuses and may have been instrumental in bringing about the Clayton Antitrust Act in 1914. (“Judge Grosscup Talks on Trusts,” The Butte Inter Mountain, December 13, 1902, 3; “Trouble for the Beef Trust,” Savannah Morning News, February 21, 1903, 4; “Sherman Act Failure,” Richmond Times Dispatch, December 27, 1907, 1; “Law of Economics Demands Combinations,” The River Press, February 23, 1910, 8; “Grosscup Hits Sherman Act,” New York Sun, June 25, 1911, 10.)
As a “Lincoln Republican” concerned about ordinary people instead of the Robber Barons who, in common with today’s über-rich, thought they were the only significant factor in the American economy, Grosscup wrote a series of articles in the early twentieth century. Published in American and British magazines, his pieces advocated widespread capital ownership to “people-ize” American industry. (“The Beef Trust Enjoined: Address by Judge Peter S.; Grosscup,” The Outlook, February 28, 1903.)
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| Theodore Roosevelt |
Given his international reputation and the fact that he was a friend of Roosevelt, it would not be astonishing to discover that Grosscup’s ideas about expanded ownership influenced Chesterton’s development of distributism. As Grosscup said in a lecture he delivered at the University of Nebraska law school, December 12, 1902,
A widespread withdrawal by the people at large from general ownership in the properties of the country cannot but be fraught with the gravest dangers. Such withdrawal will diminish if not destroy popular interest in national prosperity, for from those only who have a stake in prosperity can we expect great interests — the real strength of government; for government must be built on the interests as well as the affections of the people governed. An industrial system subject to such indictment is a rising menace to free government itself. (“Says Dangers Follow Growth of the Trusts,” The San Francisco Call, December 14, 1902, 58.)
Grosscup’s articles were intensively researched. Virtually every aspect of his proposals was well-thought out and would require only minor changes in corporate law. Primarily, he advocated a national law of corporations to replace the system of incorporation at the state level that still exists today. This avoided tying the proposal to finite land and opened the potentially unlimited frontier of commerce and industry to popular ownership. (Peter S. Grosscup, “How to Save the Corporation,” McClure’s Magazine, February 1905.)
Unfortunately, Grosscup made the same mistake as Leo XIII, Chesterton and Belloc, and, later, Pius XI. He assumed that the only source of financing for broad-based capital ownership is past savings. (Ibid.) — and what that meant for the global economy is what we will look at in the next posting on this subject.
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