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, February 21, 2019

Fulton Sheen and the Problem of Finance

As we saw in the previous posting on this subject, the problem with the solution to social problems that Fulton Sheen advocated is that it causes another problem . . . such as, where does anyone get the money to purchase capital to become an owner without violating someone else’s ownership?  We cannot make society a free-for-all in which people take what they want when they want it.  All that means is “might makes right,” especially in economics and finance.

John Paul II
No, as Pope John Paul II reminded us, the economic common good should be circumscribed “within a strong [albeit limited] juridical framework which places it at the service of human freedom in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious.” (Centesimus Annus, § 42) Most important, ownership of capital must be democratically distributed (not redistributed) throughout society as the chief support for both individual freedom and institutional integrity.
We can summarize these “four pillars of an economically just society” as:
1. A limited economic role for the State, confining the State to enforcing contracts, setting standards, and protecting property rights of everyone, as well as lifting all economic and legal barriers to universal ownership participation as a fundamental human right. This is consistent with Paragraph 17(1) of the “Universal Declaration of Human Rights”: “Everyone has the right to own property alone as well as in association with others.”
2. Free and open markets within an understandable and fair system of laws as the most objective and democratic means for determining just prices, just wages and just profits (i.e., the “bottom line” or residual after meeting all costs for producing marketable goods and services),
3. Restoration of the rights of private property, especially in corporate equity and other forms of business organization, including the right of corporate owners to receive their proportional share of profits, and share in the governance of an enterprise, and
4. Widespread capital ownership, individually or in free association with others.
The question then arises, if the rich have a virtual monopoly on existing accumulations of savings, how are the non-rich to become owners of the capital they need so desperately?
Harold Moulton
The answer is to shift the financing of new capital from past savings (past reductions in consumption), to future savings (future increases in production). Future savings can be accessed, when past savings cannot, by making a promise to be redeemed at some future date, that is, by “extending credit,” credit being just another name for “money.”
Nor is this some kind of utopian fantasy.  In a response to the Keynesian New Deal, Dr. Harold G. Moulton, president of the Brookings Institution in Washington, DC, from 1928 to 1952, described in The Formation of Capital (Harold G. Moulton, The Formation of Capital. Washington, DC: The Brookings Institution, 1935, 75-84) how future savings can be accessed through the expansion of commercial bank credit.
Moulton’s work provided the basis for Kelso and Adler’s second collaboration, The New Capitalists (1961), showing how universal access to capital ownership could be financed with future savings, freeing economic growth from the “slavery” of past savings.
The process is actually quite simple and straightforward.  When the capital purchased on credit is put to work producing marketable goods and services, and a profit is realized from the sale of what is produced, part of the profits can be used to redeem the promise — repay the credit — by means of which the capital was purchased. In this way the capital pays for itself out of its own future earnings. Using this method of finance, people without capital can become owners of capital without taking anything from anybody else.
The issue of collateral can also be handled in a way that makes it possible for every otherwise qualified borrower to obtain capital credit. Instead of using traditional accumulated wealth (by definition a monopoly of those who are already rich) to secure a loan, Kelso and Adler proposed using capital credit insurance and reinsurance, with the “risk premium” already charged on all loans used as the premium on an insurance contract.
In this way it is possible for “as many as possible of the people to become owners” (Freedom Under God, 29.) without violating the rights of existing owners, as the capitalists fear or redefining human nature to exclude private ownership as a natural right, as the socialists demand. With widespread private property in capital to guarantee everyone’s “freedom under God,” everyone can achieve the highest freedom “by acting within the law of [our] being and choosing between good things in order to attain the fullest enrichment and flowering of [our] personality.” (Freedom Under God, 29.)