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.

Thursday, May 24, 2012

The Global Debt Crisis, XIII: Implementing the Solution

As we have seen it is a fundamental principle of natural law that the State was made for man, not man for the State. The State's proper role is to help people help themselves, not to provide for every conceivable want and need. The State's job is care of the common good, not every individual good. This is so that the individual may exercise his or her natural rights, thereby acquiring and developing virtue.

The normal means by which citizens acquire and develop virtue is ownership of capital. This not only empowers them economically, removing all justification for State control of the economy, it empowers them with the political power to resist growing State intrusion into their daily lives, whether domestic, through State bureaucrats dictating to parents, or religious, through dictating to organized religion.

The issue boils down to whether the State is the guarantor of all individual goods. If so, then what constitutes an individual good is a matter of opinion to be decided by whoever has the power to force others to comply — and who has control over money and credit to finance whatever they want, running up debt that can never be paid under current assumptions.

When ordinary people cannot afford to own the capital that is displacing them from their jobs, the State tries to take up the slack by guaranteeing jobs, wages, benefits, entitlements — whatever. This, as Goetz Briefs pointed out, ends up bankrupting the State, the fate hanging over the world today as governments try to spend their way out of the current debt crisis. The only way out is to make every person an owner of capital.

The problem with making it possible for every child, woman and man to have the opportunity to become a capital owner, however, is the fixed belief that it is essential to reduce consumption and accumulate savings before new capital can be financed. Advancing technology, however, both replaces human labor in the production process and, by its high cost, shuts out most people from ownership of capital instruments. This is because only the rich or the State have the capacity to save or create enough money to finance new capital.

Fortunately, the belief that new capital can only be financed out of existing accumulations is utterly false, as Dr. Harold Moulton, president of the Brookings Institution from 1916 to 1952, proved in The Formation of Capital, published in 1935 as the third volume in a four-part series presenting an alternative to the Keynesian New Deal. The vast bulk of new capital is not financed out of past reductions in consumption, but by future increases in production. The present value of future marketable goods and services is monetized and used to finance new capital that pays for itself out of future profits.

Because this method of finance does not rely on the ability to reduce consumption, but on the capacity to own capital, anyone can become an owner of capital without first reducing consumption and accumulating savings. One proposal that embodies this method of finance is "Capital Homesteading."

Capital Homesteading is a national economic policy based on the growth model of binary economics. It is designed to lift barriers to capital ownership in the present financial and economic system and universalize access to the means of acquiring and possessing capital assets. A Capital Homestead Act would allow every child, woman and man to accumulate capital in a tax-sheltered Capital Homestead Account. There would be a target level of assets sufficient to generate an adequate and secure income for that person without requiring the use of existing pools of savings or reductions in current levels of consumption.

Under "Capital Homesteading," a citizen would have a tax-sheltered capital asset accumulation account, similar to an Individual Retirement Account (IRA). Each capital homesteader's account would be the "vehicle" to accumulate annual allocations of interest-free, productive credit and new asset-backed money issued by the central bank and administered by local commercial banks. This new money and credit would then be invested in feasible private sector capital formation and expansion projects of businesses that would issue new shares to be purchased and sheltered in the citizen's Capital Homestead Account. After the "future savings" (future profits) generated by the productive assets paid off each year's Capital Homestead investment (loan), the citizen would continue to receive in the form of dividends the incomes generated by those capital assets.

By vesting each citizen with power over his or her own life through ownership of capital, both the means by which the State controls people's lives, the monumental debt that has accumulated, and the justification for such control and debt in the first place would be removed. The whole "austerity v. stimulus" debate would be moot.