Everyone needs power. It’s essential if you want to take control of your own life and become virtuous, as Aristotle pointed out. The problem is how to get it legitimately and how to use it to control your own life and not others.
Legitimate power is not divisive but unifying. It does not dominate over others but gives control over one’s own life. This results in the exercise of personal sovereignty of the human person within the parameters established by natural law, especially those natural, inalienable rights of life, liberty, and access to the means of acquiring and possessing private property that are the foundation of respect for human dignity.
Power is correctly defined as “the ability for doing.” Without power, rights cannot be exercised. Without the exercise of rights, most people will neither meet their material wants and needs through their own efforts nor become virtuous; personalism without power is anti-personalism, dividing rather than uniting.
It is therefore essential to constitute power relationships, that is, institutions (social habits), in a way which unifies as well as protects and enhances human dignity for all, not just some of the time, or of some people at the expense of others. This requires acts of social justice to ensure that institutions are properly structured.
In turn, acts of social justice are impossible without power, and power ordinarily accompanies property. This does not refer to ownership of or access to mere consumption goods, i.e., food, clothing, shelter, healthcare, education, and so on.
If that were the case, the demand for widespread ownership would be a ludicrous, even cruel parody of respect for human dignity. Insisting that society provide the necessities of life as a usual thing imposes on recipients a condition of dependency tantamount to slavery.
The need is for widespread private property in productive wealth, capital — the means of production. When a person can produce what he needs for his own consumption, or to trade for what others have produced that he needs or wants to consume, he is not a dependent. Rather, he is independent as an individual, and interdependent as a member of society.
But why private property?
Private property is important because it is not the thing owned, but the natural right inherent and absolute in every human being to be an owner. At the same time, private property is also the socially determined and limited bundle of rights that define how an owner may use what is owned, even in some circumstances what may be owned.
The problem for the past two centuries or so, however, has been that human labor (which everyone owns) has been displaced in large measure from the productive process by advancing technology (which few own). Both capitalism and socialism attempt to deal with this problem by concentrating ownership of technology in as few hands as possible. They then redistribute production belonging to the owners of technology to the owners of labor on some basis or other that overrides the right to and the rights of private property.
Both capitalism and socialism thereby embody an injustice by taking without compensation what some have produced for the benefit of others. The obvious solution to the conundrum of human labor being displaced by technology, however, is that everyone should own technology as well as labor so that everyone can be productive.
Although this is simple and obvious once it is stated, a piece of the puzzle was missing. That is how to get private property in capital — and thus power — into the hands of ordinary people without redistribution or otherwise harming the rights of existing owners. Many people have suggested paying workers more. There are, however, serious difficulties with that, such as the injustice of paying people more than the fair market value of what they produce and increasing costs that drive up prices for the consumer.
It was not until the work of Louis Kelso and Mortimer Adler in the late 1950s that the problem was solved. Kelso and Adler showed how ordinary people could become owners of capital in a financially sound manner. The synthesis eventually became known as “the Just Third Way of Economic Personalism.”
The idea is stunning in its simplicity, once one gets away from the fixed idea that the only possible way to finance new capital is to consume less than one produces and accumulate the excess as money savings. It is possible — indeed, preferable — to finance new capital by purchasing or “forming” new capital on credit, then producing more than one consumes until the loan is repaid: future savings instead of past savings. Once the loan is repaid, everything produced can be consumed directly or exchanged for what one wants to consume.
That is, in fact, how the rich have typically financed new capital, especially during periods of rapid economic growth when there are not enough past savings in the system. Instead of using their invested wealth to finance other wealth directly, the rich use their current accumulations (already tied up in capital) as collateral for loans extended out of “pure credit” and repaid with future savings.
Pure credit is a loan made from money newly created by the banking system, backed by the very capital the loan is made to purchase, and secured with the existing wealth of the borrower. In this way, it is theoretically possible always to have exactly as much money and credit in the system as is needed to finance new capital for everyone.
Sufficient money to carry out transactions to purchase all the goods and services produced is another matter. It can be supplied by turning existing inventories of goods or contracts for services into more useful forms of money through a somewhat different process. While the procedure is different, however, the result is the same: enough money and credit in the economy for all legitimate purposes.
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| Papa Hemmingway |
There is, however, one problem. The advantage the rich have over the non-rich is not that they have more money, as Ernest Hemmingway allegedly quipped in response to F. Scott Fitzgerald’s declaration that the rich are different. Rather, the rich have more collateral in the form of old money and can thereby participate in creating virtually all the new money they need to finance sound capital projects.
Realizing that the purpose of collateral is to secure lenders against the risk of loan default by borrowers, Kelso recommended the non-rich use a new form of collateral. Instead of existing wealth, Kelso proposed using capital credit insurance and reinsurance that would pay off in the event a borrower defaulted on a capital acquisition loan.
A one-time insurance premium based on the risk of default and included in the loan repayment is much less expensive and a more efficient use of resources than accumulating existing wealth as collateral. In this way, Kelso argued, anybody with a financially feasible capital project (that is, one that pays for itself within a reasonable period out of its own profits) can become a capital owner quickly and on relatively easy terms.
That is the heart of the Economic Democracy Act, a blueprint for freedom and human empowerment.
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