THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Monday, September 21, 2009

The Recession is Over . . . Again, Part II of II

In the previous posting on the End of the Great Recession (again), we noted that the only way to get the economy started again was to stimulate consumer demand. There is, however, a catch to that. The only real way to get an economy started again is to stimulate demand naturally, not artificially — and that means opening up means for ordinary people to be able to spend the income generated by capital instead of having the rich reinvest it or the government tax it and redistribute it. Otherwise, income that would otherwise have been spent on consumption is reinvested to finance new capital, accelerating the accumulation of wealth that cannot be consumed and is therefore reinvested . . . .

You get the idea. To solve this problem requires that ordinary people — people who will spend their capital income on consumption instead of reinvesting it — become owners of the means of production. This does not mean taking away capital from capital owners and redistributing it to capital non-owners. Instead, it means opening up access to capital credit on the part of non-owners so that they become owners of the estimated $2-3 trillion of new capital formed each year in the United States.

Purchase of capital by non-capital owners will, in and of itself, spur demand. This is because capital goods may be capital goods to the purchaser, but they are marketable inventory — consumer goods — to the producer and the seller. The sale of these goods make a profit, or at least are intended to make a profit. In accordance with Say's Law of Markets, this profit represents income to the owner of the capital. If spent on consumption instead of reinvesting the proceeds in more capital, the capital income will provide the demand to get the economy moving again.

This, of course, raises another question: where are people supposed to get the credit with which to purchase capital? Don't people have to cut consumption, save, then invest before they can purchase capital, even capital that pays for itself out of future earnings?

No. The idea that you need to cut consumption and save before investing is a fallacy that has shackled economic development and kept many people in poverty and want who didn't need to be there. The fact is that it is entirely feasible — in fact, extraordinarily beneficial to the economy as a whole as well as individuals — to invest before saving. Since "money" is nothing more than a promise, a contract to deliver wealth (as even Keynes admitted in his Treatise on Money, 1930), all the money that is needed can be created out of the capacity of a borrower to make good on his or her promise to repay the loan out of future profits. Existing accumulations of savings are not necessary, except to serve as collateral — and collateral can be replaced by capital credit insurance and capital credit reinsurance.

A program to achieve the goal of widespread ownership of the means of production can be found in "Capital Homesteading for Every Citizen," an application of the principles of the Just Third Way as found in the binary economics of Louis Kelso and Mortimer Adler. Freedom from the constraints imposed by reliance on the false claim that existing accumulations of savings are absolutely necessary to finance capital formation is, in fact, the whole point of Kelso and Adler's second book, The New Capitalists (1961), with the "revealing" subtitle, "A Proposal to Free Economic Growth from the Slavery of Savings."

Capital ownership is certainly a more attractive prospect than Mr. Bernanke's "jobless recovery" that benefits speculators and gamblers at the expense of the truly productive. It's also the only thing that is actually going to work.