On the economic level with which we are concerned, the Just Third Way requires that we shift from the tenets of the British Currency School, to those of the British Banking School. Adherence to the principles underlying the Currency School understanding of money has hampered, even prevented sound economic growth for centuries. While not perfect, the principles on which the Banking School is based are more consistent with economic and political reality than the contradictory assumptions and dictates of the Currency School.
As a result, we need to reject the artificial scarcity constraints built into the Currency School approach by Malthus and others, and revive and restore the real bills doctrine and Say's Law of Markets. To accomplish the goal of an economically just society, we believe that a Capital Homesteading program should focus primarily on increasing production by accelerating democratic growth of the private sector. This would be effective if for no other reason than making new investments productive and making certain the income from ownership is distributed widely and, above all, equitably throughout society in accordance with the principles of economic justice will ensure as far as humanly possible a sound and sustainable economic recovery.
Before beginning, however, we should offer Belloc's prescription from The Restoration of Property, along with a brief analysis to show where Belloc makes a few mistakes, but (more importantly) how the Just Third Way and Capital Homesteading can achieve the stated goal of restoring widespread private property in the means of production as the chief economic characteristic of society — but without relying on the flawed Keynesian/Currency School assumptions about money and finance that hampered Belloc's proposal.
Belloc concludes The Restoration of Property with a three-point program that he believed would effect a return to a society characterized by widespread direct ownership of the means of production:
• Pass legislation favoring "small" business over "large" business. After businesses reach a certain size impose legal penalties sufficient to offset the advantages of economies of scale. Where businesses remain large, ownership should be divided among many people.The critical weaknesses and contradictions in Belloc's proposed remedies should be immediately obvious. The most serious problem, of course, is the fact that Belloc takes for granted the wrong definition of money, and assumes as a given that capital formation cannot be financed except out of existing accumulations of savings. Clearly, such assumptions necessarily result in concluding that, to bring about the desired outcome, the State will have to continue to control money and credit.
• Reestablish the Guild. The Guild would not, however, be the medieval institution consisting of an independent body of individuals coming together in free association, but take the form of a State-mandated and regulated corporation.
• Establish a State-sponsored and protected cooperative banking system to finance the Guilds and compete with the independent commercial banking system.
The only change is that, instead of benefiting a public sector elite as under socialism, or a private sector elite as under capitalism, the system would be manipulated so that the State's effective abolition of private property established and maintained by control over money and credit and separation of money from production will simply benefit — temporarily — a new elite: de Tocqueville's "tyranny of the majority." Thus would Benjamin Watkins Leigh's prediction in the Virginia Convention of 1820 come to pass: "Power and Property can be separated for a time by force or fraud-but divorced, never. For as soon as the pang of separation is felt . . . Property will purchase Power, or Power will take over Property."
We should note that the new tyrant would only be in power a relatively short time. This is in the nature of things. Ironically, Belloc's recommendations all require a high degree of State involvement in and control over the economy — and thus over the personal lives, liberty, and property of everyone in the State. This creates a society indistinguishable for all practical purposes from the socialized capitalism (or capitalized socialism) that Belloc called the Servile State. In his anxiety to gain for the "small man" the protections currently enjoyed by the elites under capitalism and socialism, Belloc failed to keep in mind that (as Kelso reminded us), "Property in everyday life, is the right of control." (Louis O. Kelso, "Karl Marx: The Almost Capitalist," loc. cit.) The great mass of ordinary people might enjoy a brief period in which they receive the benefits presumably due them, but the State would soon find a way to justify a more politically based distribution as a means to restore its "lost" power.
The Just Third Way as applied in Capital Homesteading is the only rational alternative to capitalism, socialism, or a diluted distributism corrupted into effective socialism by a bad definition of money and reliance on existing accumulations of savings to finance capital formation. A Capital Homestead Act offers the following goals in place of Belloc's unfortunate (and seemingly completely unconscious) Statism:
Promote Private Sector Growth Linked to Broadened Ownership. Recreate in the 21st century the conditions that resulted from the first Homestead Act of 1862. As a Capital Homestead Act would be based on all productive capital, not just land, this would include full employment, declining prices, and widespread, individual and effective ownership of income generating assets. Part of the Act would be to set a realistic long-term target, based on the nation's industrial growth potential, to achieve a minimum Capital Homestead stake for every American family within a reasonable period of time.
Stimulate Maximum Growth, with a Balanced Budget and Zero Inflation Rate. Remove barriers to maximum rates of sustainable and environmentally sound, private sector growth to achieve a balanced federal budget and a zero inflation rate under a Capital Homestead program.
Establish a Tax System That Stimulates Economic Growth and Jobs, and is More Accountable to Taxpayers. Rewrite and radically simplify the existing federal tax system to automatically balance the budget. Keep more money in the pockets of taxpayers from their initial earnings to cover their own health, education, housing and other basic household living expenses. Make Congress more directly accountable and responsive to all taxpayers. Eliminate all tax provisions, personal deductions, tax credits, and exemptions (except for the front-end exemptions for adults and dependents) that unjustly discriminate against or discourage property accumulations and investment incomes for poor and non-rich families.
Keep the Social Security System and Medicare Promises. Keep existing promises and reduce the unsustainable burden on the Social Security and Medicare Systems, by enabling every American to accumulate sufficient wealth-producing assets to provide each person with an adequate and secure taxable income from property, independent of Social Security and Medicare benefits and incomes from other sources. Based on conservative projections of U.S. growth potential, by age 65 a child born today could accumulate a capital estate of nearly $500,000, generating $1.6 million in after-tax dividends over that period.
Restructure the Credit and Tax Systems to Encourage Universal Health Care through the Private Sector. Capital Homestead reforms, supplemented by health care vouchers for the poor, would provide a sustainable way to finance the health care system. These reforms would empower each citizen and family with the means to enjoy and pay for affordable, quality health coverage of their choice. Through market-disciplined, comprehensive health care enterprises that are owned and controlled by health care providers and health care subscribers (patients), the doctor-patient relationship could be restored, while providing greater insurance portability, accountability and lower administrative overhead costs throughout the system.
Solve the Home Foreclosure Crisis and Make Home Ownership Accessible to all Citizens. Starting in communities with homes whose market values are deflated due to the sub-prime mortgage crisis, resident-owned Homeowners Equity Corporations (HECs) could receive interest-free credit to buy up the foreclosed properties. As occupants of the homes in default pay the HEC their monthly rents (which could be supplemented with housing vouchers for the poor), these would be applied toward debt service, using pre-tax dollars to pay off the loans that the HEC used to purchase the foreclosed properties. As they make their regular monthly lease payments, these renters would become full owners of HEC shares and their dwellings.
Stop Federal Reserve Monetization of Government Debt. Terminate use of the Federal Reserve's powers to create debt-backed money, to support foreign currencies, or to buy and sell primary or secondary Treasury securities. This would reduce excessive government spending and improve accountability. It would force government to borrow for deficits directly from savers in the open markets.
Stabilize the Value of the Currency. Require the Federal Reserve to create a stable, asset-backed currency to encourage ownership by all citizens of productive private sector assets rather than non-productive public sector debt or future ownership monopolies.
Reduce Dependency on Existing Accumulations of Savings for Financing Growth. Require the Federal Reserve to distinguish between "sound" and "unsound" uses of credit, by providing interest-free money to expand bank credit to enable every American to become an owner of a viable accumulation of new income-producing assets. This would reduce America's dependency on existing accumulations of savings, corporate retained earnings, or foreign government wealth funds advantaged by America's growing trade imbalances.
Restore the Federal Reserve to Its Original Function. Require the Federal Reserve System to supply sufficient money and credit through local commercial banks to meet the liquidity and broadened ownership needs of an expanding market-disciplined economy. Such "Fed-monetized" loans would be subject to appropriate feasibility standards administered by the banks and limited only by the goal of maintaining a stable value for the dollar. Unsound or usurious uses of credit, such as the speculative credit that created sub-prime home mortgages and the global financial meltdown and the growing burden of consumer and government debt, would be financed from the accumulations of the wealthy that can afford the risks.
Democratize Ownership of the Federal Reserve. Provide every citizen a single, lifetime, non-transferable voting share in the nation's central bank — the network of twelve regional Federal Reserve banks. This will ensure that the Federal Reserve's board of governors is broadly representative of all groups affected by Federal Reserve policy, and that power over future money creation is spread widely among all citizens.
Discourage Monopolies and Monopolistic Ownership. Link all economic reforms to methods that discourage privileged access to monopolistic accumulations of private property ownership of the means of production. Enforce anti-trust laws by providing access to interest-free capital credit to encourage broadly owned new competitors to enhance and sustain market-oriented growth.
Introduce a Market-Driven Wage and Price System. Gradually eliminate rigid, artificially protected wage and price levels and other restrictions on free trade that afford special privileges to some industries, businesses and workers at the expense of American and foreign customers of US products. Replace subsidies with interest-free credit incentives to farmers who wish to associate voluntarily in cooperatives and in enterprises jointly owned by farmers and workers, including integrated agribusinesses. The income generated by farmer-owned enterprises would supplement farm incomes and reduce the need for subsidies.
Restore Property Rights in Corporate Equity. Restore the original rights of "private property" to all owners of corporate equity, particularly with respect to the right to profits and in the sharing of control over corporate policies. Preserve traditional powers of professional managers held accountable by Justice-Based Management corporate governance structures.
Offer a More Just Social Contract for Workers. A top priority during the next decade would be developing a more just "social contract" for persons employed in the private sector. This would be geared toward establishing maximum ownership incentives. Instead of inflationary "wage system" increases, employees would begin to earn future increases in income through production bonuses, equity accumulations, and profit earnings. These "bottom-line" rewards would be linked to workers' individual contributions, and to the productivity and success of their work team and the enterprise for which they work.
Encourage More Harmonious Worker-Management Relations. Promote the right of non-management workers to form democratic unions and other voluntary associations. Instead of promoting the traditional "conflict model" of industrial relations, however, "labor" unions would be encouraged to transform themselves into democratic "ownership unions." These ownership unions could become society's primary institutions for promoting a free market version of economic justice, while continuing to negotiate and advance workers' economic interests, including worker ownership rights and Justice-Based Management policies.
Under Capital Homesteading, unions could expand their role in a free market system by educating and expanding their membership to include all citizen-shareholders. Ownership unions would enhance the property rights of all shareholders by enhancing management accountability and transparency, and protecting against unjust executive compensation schemes.
Promote a Life-Enhancing Physical and Cultural Environment. Encourage special ownership incentives for those engaged in research and development, especially in the search for new and sustainable sources of energy, ecological restoration and labor-saving technologies. Provide sufficient low-cost credit and royalty-free licensing for enterprises capable of commercializing life-enhancing technologies developed for the military and space programs. Subsidize the development of new methods of conserving and recycling non-replenishable and limited natural resources that are vital to civilization's long-term survival, at least until suitable substitutes can be discovered and developed. Promote the teaching at all levels of education of universal principles of personal morality and social morality that are based on the inherent dignity and sovereignty of every human person within all institutions of a just social order, including the State.
Reduce Public Sector Costs. Provide America's military, policemen and firemen, teachers, and other public-sector workers with a growing and more direct equity stake in the free enterprise system, both as a supplement to their costly pension plans and so that they will better understand and defend the institution of private property. Whenever feasible, transform government-owned enterprises and services into competitive private sector companies, by offering their workers (and customers and other stakeholders in capital-intensive operations like TVA) opportunities to participate in ownership, governance and profits.
Establish Workable Demonstrations of Capital Homesteading at the Community, State, Regional and Global Levels. Launch several Capital Homesteading demonstrations. These would be most effective in areas of high unemployment. A major objective would be to evaluate ownership-broadening Federal Reserve reforms, innovative broadened ownership mechanisms, advanced concepts of worker participation in decision-making, and servant leadership developments like Justice-Based Management.
Encourage State and local governments and other countries to promote widespread capital ownership as a basic "Just Third Way" framework for building a sound market economy.
Study the feasibility of a national and global citizen-owned "Land and Natural Resources Bank" to plan development of Nature's resources, receive rentals for use of land and natural resources, and distribute citizen dividends among the population. With the leadership of the United States, urge the United Nations and other international agencies to encourage the use of such economic development vehicles in order to bring about "peace through justice" in conflict-torn countries.
Initiate New Challenges for Multinationals. Provide special encouragement to U.S.-based multinational corporations and global financial institutions to become instruments of peace and a more just world economic order, by broadening access to their ownership base to all citizens of the world community. Encourage businesses to open up future ownership opportunities as they begin harnessing the resources of the sea, the airways and other planets.
Promote a New Global Monetary System based on full production and full participation in production instead of inflation and debt. Encourage the convening of a second "Bretton Woods Conference" to consider the implications of the Kelsonian binary economic model on global currency standards, the feasibility of a single global currency, and more just foreign exchange rates. The new policy should seek to reform global financial markets to address the challenge of global poverty and sustainable development, as well as leveling the playing field among nations for global free and open trade.
These measures, of course, are expressed in necessarily broad terms, but they give a good idea of the approach of the Just Third Way as applied in Capital Homesteading. The orientation is removal of barriers to full participation in the common good so that every person has an equal opportunity to acquire and develop virtue and so become as fully human as possible.
This is in sharp contrast to the imposition of barriers that Belloc and many others recommend, an approach directly opposed to essential human dignity. Trapped by a bad definition of money, Belloc ends up simply recommending changes in a few outward forms, with no substantial changes at all in the institutional structures. Thus, to be able to engage in productive activity, Belloc would shift from mandatory employment in a State-regulated wage system job, to mandatory association in a State-controlled Guild. A State-controlled cooperative banking system would be established to compete with the State-controlled commercial and central banking system. To ensure that businesses remain small (instead of at optimal or appropriate sizes), the State would impose legal disabilities on anything State bureaucrats consider "too large."
In short, Belloc would replace the private elite's near-total control of the economy and people's lives under capitalism, with the absolute control of the economy and people's lives under something that is socialism in all but name. Blinded by the wrong definition of money, Belloc believed himself forced to accept the unacceptable: the very socialism that abolishes in name as well as in fact that which capitalism "only" abolishes in fact: private property. As he undermined his own argument, "State ownership is better, of course, than ownership by a few very rich individuals, or even than ownership by many small shareholders who are at the mercy of a few rich ones, as they are under our English company law." (The Restoration of Property, op. cit., 88-89.)
We cannot stress this point enough, for it is the inevitable result of the abandonment of a concept of the natural moral law based on the Nature of a Creator and discerned by the use of reason, and adopting an orientation that bases the natural law on what ends up being the will of the strongest — the "might makes right" of Kallicles the Sophist. Rejecting lex ratio for lex voluntas ("law is reason" for "law is will"), means abandoning the full spectrum of natural rights and a specific understanding of the human person as analogously complete with his or her Creator and each other, and exaggerating one or two rights to the detriment of other rights and society as a whole, as well as denying the full humanity of selected individuals or classes.
Thus, the capitalist raises liberty (freedom of association) to the status of the highest virtue. In this, capitalism displaces both charity as the highest supernatural virtue, and justice as the highest natural virtue. Freedom becomes license as it ignores the demands of charity, justice, and the natural equality of all humanity within the common good and before the law. The capitalist system does this by denying most people equal opportunity and access to the means of becoming an owner of the means of production and maintaining barriers inhibiting or preventing the situation from being any different. When the economy becomes too chaotic for the system to maintain itself more or less naturally, the laissez faire capitalist turns semi-socialist and demands the assistance of the State to maintain the status quo.
The socialist reverses this order. Socialism raises equality to the status of an idol with extremely heavy feet of clay. The socialist system rejects freedom of association — liberty — in an effort to force a pre-determined and artificial equality of results on everyone. As this is wholly contrary to nature, the socialist necessarily uses the coercive power of the State to achieve this end when private efforts fail — as they must. When the economy begins to implode and becomes unsustainable, the strict socialist becomes semi-capitalist and demands that economic license for a few overcome the effects of denying economic liberty to all. (cf. "Why Democratic Nations Show a More Ardent and Enduring Love of Equality than of Liberty," Democracy in America, Volume II, II.1.)
Examining Belloc's three recommendations objectively, we instantly see that each one involves using the coercive power of the State to enforce an artificial equality at the expense of liberty. In his anxiety to establish an economically just social order, Belloc forgot the whole reason for having an economic order in the first place, or even society itself: to provide an environment within which each and every individual can develop more fully as a person without any more coercion than is necessary to maintain order and prevent harm to individuals, groups, or the whole of the common good.
It is no wonder that Belloc declared so many times that the task of restoring property was very nearly hopeless, for he had already given up hope! How else could it have been possible for him to say that a system of State ownership — in which there is no possibility of private ownership of the means of production, and which has been condemned many times by his own Church — is better than a system in which there is at least lip service paid to private property, and thus always a chance that people will come to their senses once right-minded people organize and carry out acts of social justice directed at the common good? It is incomprehensible how someone who viewed the State with such suspicion could, in the end, prefer socialism to even the worst forms of capitalism.
Thus the Just Third Way, which avoids Belloc's fatal compromise with and acquiescence in socialism by starting with the correct definition of money, can offer more than a vague and contradictory "hope" that leaves us hopeless. As applied in Capital Homesteading, the principles of the Just Third Way offer specific recommendations that do not rely on turning over control (and thus property) to the State, but on restoring to people their dignity as human persons by securing to them the exercise of their natural rights to life, liberty, property, and the pursuit of happiness. In this way we can best heed the warning with which Alexis de Tocqueville closed the second volume of Democracy in America:
The nations of our time cannot prevent the conditions of men from becoming equal, but it depends upon themselves whether the principle of equality is to lead them to servitude or freedom, to knowledge or barbarism, to prosperity or wretchedness. ("General Survey of the Subject," Democracy in America, op. cit.)#30#