As we saw in yesterday's posting, the way to sustainable economic and social development lies in opening up opportunities for people without capital to own capital. In this way they can participate in the production of marketable goods and services with both their human (labor) and their non-human (capital) inputs. As technology advances and displaces human labor from the production process, it becomes critical that people without direct ownership of capital become owners of capital.
The question then becomes how people without savings are supposed to acquire capital? This was a critical issue for Thornton, because the capital with which he was concerned was landed capital, the chief form of productive asset in Ireland in his day.
Thornton proposed that the vast tracts of idle "waste land" in Ireland be purchased by the government and allotted in economic plots to Irish families, who would be supported by an allowance until they could grow their own food. After a period of time sufficient to bring the land into full production, the families would start making payments on the land, and within 20 years would own it freehold. The scheme would rely on being able to purchase the waste land at a low price — its current value as waste land — with the money provided by floating government bonds, backed by the purchase value of the land itself. (Thornton did not explicitly state this, but spoke of interest being paid on the loans, which — as the money had to come from the government — could only be the result of issuing State bonds.)
The new money created by the bonds would first be used to finance the purchase and development of the land, and then be cancelled or retired as the payments for the land were received. Thus, the money could be created as needed, as long as what the money was spent on provided the "future savings," that is, sufficient income in the future from the production of marketable goods and services, to pay back the money. There would thus be no problem with either inflation or deflation.
There was, of course, the question of maintenance during the period it took for the land to become fully productive. Thornton estimated this at three to five years, judging from the rate of improvement on land of lesser quality in Flanders and other areas in Europe. He noted, however, that the government was spending millions of pounds sterling on relief efforts and on infrastructure for which there was currently no demand. Using the same funds to maintain families relocated on to unproved land would result in an estimated immediate savings of £5 million a year for two years until the land became productive.
The plan fell through because of two factors. One, landowners simply refused to sell the unused land, and the government refused to condemn the land and force a sale for the common good under eminent domain.
Two, although he might not have realized it, Thornton's method of finance was an application of "the Banking Principle," based on Say's Law of Markets and the real bills doctrine. Unfortunately, parliament had just enacted the Bank Charter Act of 1844 that, after decades of debate, repudiated the Banking Principle of Adam Smith, Henry Thornton (no relation) and Jean-Baptiste Say that allowed for an "elastic" banknote currency backed with private sector hard assets supplemented with gold and silver coin that expands and contracts with the needs of commerce, industry and agriculture and is thus neither inflationary nor deflationary. The new Act went with the Malthusian/Ricardian Currency Principle that imposed an "inelastic" banknote currency in fixed amount, backed with government debt and supplemented with gold and silver coin.
Parliament was not going to nullify its own act barely four years after it had passed it, regardless how bad the situation was . . . for Ireland. Of course, when the government itself and the private business interests of the City of London demanded an increase in the money supply in 1847, 1857, and 1866 to meet a continuing series of currency crises, the Bank of England was instructed to inflate the currency, backing the increase with more government debt rather than private sector assets.
In the 1874 edition of A Plea for Peasant Proprietors (that's the 1848 edition over there), Thornton explained why he reiterated the proposal, even though he thought it impracticable under current conditions. One, the government had completely ignored the "plea" a quarter of a century before when it would have been to the great benefit not only of Ireland, but the entire United Kingdom.
Two, Thornton wanted the reader to compare what the situation could have been like in the 1870s had the proposal been adopted. In all likelihood, for instance, there never would have been a Fenian uprising, an 1867 revolt that led eventually to the 1916 Easter Rising and partial Irish independence. It was noted that, while many small landowners were sympathetic to the Fenians, few of them actually took part, or gave more than "moral support."
Three, the proper institutional framework was not in place, and there was no sign that the British government had any intention of taking advantage of an obvious opportunity. Even if carried out without institutional reforms supporting private enterprise, it would fail. The situation would simply duplicate the same pattern into which Ireland had been locked for centuries. As Thornton noted,
"The time for creating a numerous peasant proprietary in the summary mode suggested has, however, long gone by, and is not now to be recovered. How seldom, alas, does England, in respect of Irish reforms, take time by the forelock!" (p. 261)
What Thornton did suggest in light of changed conditions, however, was corporate ownership by the State, with rights secured to leaseholders almost as if they were freeholders. This is vaguely suggestive of Henry George's proposal in Progress and Poverty five years later. Thornton's proposal would have the advantage of dealing with the problem of a limited form of capital, but from the Just Third Way perspective had two problems.
One, as Thornton himself admitted, it let the State in, and the State is usually the worst choice to do anything that the private sector could do. As he put it, "Really, it does look as if private energy were unable to survive the torpedo-like touch of governmental support. Certainly, from Indian railways downwards, every private enterprise languishes which government guarantees." (p. 255)
Two, State ownership is almost certainly to be administered politically, rather than economically or in accordance with market principles.
Three, it does nothing to address the problem of limited land realistically, or open up access to the means of acquiring and possessing other forms of capital.
Tomorrow we'll see how Thornton's proposal has been updated in accordance with Just Third Way principles.