While not widely known as an advocate of worker ownership, Judge Posner has published a number of books relating to economic issues, the most recent of which is A Failure of Capitalism, recently reviewed in the Wall Street Journal. Avoiding the issue whether or not capitalism failed long ago, we sent a letter to His Honor yesterday pointing out some areas in which (according to the review) his analysis of the situation might have left one or two things out. Here's the letter.
Richard A. Posner
Judge, United States Seventh Circuit Court of Appeals
Senior Lecturer, University of Chicago Law School
Dear Dr. Posner:
Earlier today I read the excellent review that Mr. L. Gordon Crovitz wrote of your book, A Failure of Capitalism: The Crisis of '08 and the Descent into Depression in the Wall Street Journal. Admittedly, reading a brief review is not the same as reading the book, but, from my perspective as a Certified Public Accountant, I believe there are four areas you might not have addressed adequately in your analysis.
First, there is a need for financial professionals to gain a better understanding of money, credit, and banking. All three areas are pervaded with incorrect Keynesian assumptions that inhibit or prevent optimal functioning of their respective roles in a free market-disciplined economic process. A case in point is the Keynesian dogma that capital formation can only be financed out of existing accumulations of savings, a belief disproved by Dr. Harold G. Moulton of the Brookings Institution in his 1935 monograph The Formation of Capital.
Second, obviously more and better regulation is needed. The problem is that too many people understand "regulation" in terms of "State control." What is needed is not State control, but what accountants call "internal control," or arranging the financial system so that automatic checks and balances are in place. The State's role must be limited to policing the system, not running it.
Third, increasing competition in the system and breaking up financial monopolies is the best way to achieve the necessary degree of internal control. Financial institutions "too big to fail" need to be restructured, not offered taxpayer bailouts. Even more important, no financial institution should combine within itself incompatible functions, as resulted from the lifting of the Glass-Steagall constraints. This allowed the consolidation of commercial banks, investment banks, brokerage firms, mortgage banks, ratings agencies, and hedge fund operators under a single roof. What resulted was the virtual elimination of the checks against abuses that each of these institutions embodied when operated independently in their own self-interest. Proper separation of function also addresses Henry Simons' concern about the dangers of permitting the State to use the central bank to finance government deficits.
Fourth, the public sector should integrate the principles of economic justice found in the binary economics of Louis Kelso and Mortimer Adler, who extended Moulton's insights into sound monetary, fiscal, and other macro-economic policy. At the micro-economic level, the private sector should integrate binary economics' ownership, financial structures, and governance systems.
Simply reading these points, of course, tells you little or nothing. For that reason, I would urge you in the strongest possible terms to review a short monograph titled, "A New Look at Prices and Money," by Dr. Norman G. Kurland, president of the Center for Economic and Social Justice, published in the Journal of Socio-Economics. Dr. Kurland is a 1960 graduate of the University of Chicago law school, where he led the class in "Competition and Monopoly" taught by Aaron Director and Dean Edward Levi. He worked in the Civil Rights movement in the in the early 1960s, and later served as Director of Planning for the "Citizens' Crusade Against Poverty" chaired by the late labor statesman Walter Reuther of the United Auto Workers.
Later, Dr. Kurland headed Louis Kelso's Institute for the Study of Economic Systems, and then became Kelso's Washington counsel. In that capacity Dr. Kurland was instrumental in persuading the late Senator Russell Long of Louisiana to champion Kelso's Employee Stock Ownership Plan ("ESOP"). Dr. Kurland also served as Deputy Chairman for the Presidential Task Force on Project Economic Justice under President Ronald Reagan. He is currently working with the American Auto Workers' Ownership Committee (AAWOC) to present an alternative to the administration's proposal to save Chrysler and General Motors. Dr. Kurland is also principal author of Capital Homesteading for Every Citizen (2004). Capital Homesteading is a comprehensive package of macro-economic reforms to our national monetary, tax, welfare, labor, and trade laws, all consistent with basic free market, private property, and limited government principles.