What with the state of the economy and the so-called “woke” culture to which so many people today look for salvation when the solution is already within reach with a little effort, few realize that it was only a few decades ago that matters took a dramatically wrong turn. The Keynesian New Deal, which many believed was supposed to be temporary, became permanent public policy following World War II, even though its disutility was painfully obvious by 1936 and the surreal “Depression within the Depression” that directly resulted from Keynes’s prescriptions.
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| Woodrow Wilson |
Nevertheless, there were a few bright spots and signs of hope in the late 1950s and early 1960s. Swept under the rug since the administration of Woodrow Wilson, the demand to “do something” about civil rights for everyone was again coming to the fore. At the same time — and dating from the same 1912 presidential campaign that had made civil rights a key issue — economic and financial reform were again an important issue . . . especially after cracks began appearing in the New Deal policies supporting full employment and jobs over small ownership, the military-industrial complex, and monetary policy relying on a reserve currency backed by government debt instead of private sector hard assets.
Many people even today don’t realize that what saved Keynesian economics from the dustbin of history was the easy availability of consumer credit, beginning with the Diner’s Club credit card. Where at the turn of the last century consumer debt and usury were considered a national disaster and sparked the credit union movement, nowadays easy consumer credit and the buy-now-pay-never mentality is a vital support of both personal and public finance . . . with the resultant loss of personal sovereignty and the endangerment of national sovereignty. As Henry C. Adams noted in 1898,
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| Henry C. Adams |
The tendency of foreign borrowing is in the same direction as that of domestic borrowing. As the latter obstructs the efficiency of constitutional methods, so the former tends to destroy the full autonomy of weak states. The granting of foreign credit is a first step toward the establishment of an aggressive foreign policy, and, under certain conditions, leads inevitably to conquest and occupation. . . . The facts disclosed permit one to understand how deficit financiering, carried so far as to result in an interchange of capital and credit between peoples of varying grades of political advancement, must endanger the autonomy of weaker states unable to meet their debt-payments. Provided only that the interests involved are of sufficient importance to make diplomatic interference worth the while, the claims allowed by international law will certainly be urged against the delinquent states, and the citizens of such states may regard themselves fortunate if they succeed in maintaining their political integrity. (Henry C. Adams, Public Debts, An Essay in the Science of Finance. New York: D. Appleton and Company, 1898, 25, 28-29.)
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| Mortimer J. Adler |
By the late 1950s and early 1960s, not only was the civil rights movement taking on new life, but some people were also taking a new look at how economic life was structured. In January of 1958, Louis O. Kelso and Mortimer J. Adler published The Capitalist Manifesto, advocating widespread capital ownership and sound money creation as an alternative to the Keynesian wage system and government control of money and credit. They followed up with The New Capitalists in 1961, a book with the provocative subtitle, “A Proposal to Free Economic Growth from the Slavery of Savings.”
No, contrary to some hysterical ranting about how Kelso and Adler wanted to enslave workers by denying them wages, the idea was to gain an adequate and secure income for every citizen through both wages and capital ownership. This is consistent with, e.g., Catholic social teaching, which maintains that a just wage must be paid . . . but (as one might expect) leaves the determination of what constitutes a just wage to “reasonableness” (epikeia).
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| Louis O. Kelso |
Pope Leo XIII, for example, spoke of a sufficient or living wage as an interim measure on the way to a more justly structured social order and economy. True, as Pope Pius XI later noted, a sufficient wage is always due, either out of justice, or when the market wage rate is below what is necessary, justice supplemented with charity. The end goal, however, is not a system in which some work for others for wages, but one in which people work together as co-owners, taking the bulk of compensation out of profits.
Interestingly, after Kelso developed the Employee Stock Ownership Plan, a means by which workers could become co-owners, labor leader Walter Reuther, previously accused of being a communist or socialist, endorsed Kelso's ideas, saying that the way for the U.S. to remain competitive was for workers to become owners and take compensation increases out of profits as a right, rather than the result of collective and adversarial bargaining. This would not increase costs and thus not increase prices to the consumer. That is why, as Fulton Sheen noted, private property in capital is the cornerstone of Catholic social teaching. As Reuther explained in his testimony before the Joint Economic Committee of Congress on the President’s Economic Report, February 20, 1967,
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| Walter Reuther |
Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America’s vast corporate wealth which is today appallingly undemocratic and unhealthy. The Federal Reserve Board recently published data from which it is possible to estimate the degree of concentration in the ownership of publicly traded stock held by individuals and families as of December 1962. Preliminary analysis of these data indicates that, despite all the talk of a “people’s capitalism” in the United States, little more than one percent of all consumer units owned approximately 70 percent of all such stock. Fewer than 8 percent of all consumer units owned approximately 97 percent — which means, conversely, that the total direct ownership interest of more than 92 percent of America’s consumer units in the corporation-operated productive wealth of this country was approximately 3 percent. Profit sharing in a form that would help to correct this shocking maldistribution would be highly desirable for that reason alone.… If workers had definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates. This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs. Since profits are a residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm’s products, profit sharing as such cannot be said to have any inflationary impact upon costs and prices.
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