On Usury and Other Dishonest Profit, Part VII

As we have already discovered, redistribution through the tax system or by printing money does not address the problem underlying the current economic crisis. To be brief, the chief problem is the inability of many people to participate in the economic process by means of their labor and through direct ownership of the means of production.

That is, the reason people are not employed is because there are barriers that exist preventing them from either selling their labor, owning capital, or both, with the latter being far more common and much more critical. The Just Third Way addresses this problem by putting together three critical elements that most economic analysis omits:

1. Say's Law of Markets, that is, "production equals income." If you can't produce, you can't consume. If the economy is in a slump and goods and services remain unsold, it is because a significant number of people are not able to produce by means of their labor or capital, and thus do not have their own productions to exchange for the productions of others. Government redistribution, tax rebates, and inflation do not solve this problem, but make it worse.

2. Pure credit financing. Most economists and all politicians assume that capital can only be financed by cutting consumption, saving, then investing. This restricts ownership of capital to those who already own it, that is, to those who can afford to save. The assumption on which this is based is false. As Dr. Harold Moulton proved in his 1935 monograph, The Formation of Capital, a just and non-usurious commercial banking system can create money backed by the present value of a future stream of income to be generated by a new capital investment. Accumulated savings are not necessary for capital formation.

3. Binary economics. Because existing accumulations of savings (by definition a monopoly of the rich) are not necessary to finance capital formation, the rich can be left with their accumulations relatively intact, safe from the presumed need to redistribute. What needs to be redistributed is access to the means of acquiring and possessing property, a natural right specified in the Virginia Declaration of Rights of June 12, 1776. A program of widespread ownership of the means of production such as capital homesteading need not rely on redistributing what already belongs to somebody else. It can be based on extending new credit to people who currently lack ownership of sufficient capital to generate an adequate and secure income, and collateralized by capital credit insurance policies paid for with the standard risk premium already charged on loans.

We will start to see how these fit together in the next posting in this series.