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, October 21, 2021

And the Money?

      Yesterday we looked at the recent spate of strikes and strike-threats that have gotten this month renamed “Striketober.”  Of course, we are grateful that no one has yet started calling for a “Strike-a-thon,” but no doubt somebody soon will.


 

What no one will ask — possibly due to the high probability that few people in positions of power take seriously the recommendation by Walter Reuther to turn workers into owners — is how to pay for the expanded ownership.  After all, it’s not entirely clear who — if anyone — pays for the equity that Reuther said should go to workers.

To recap, Reuther’s recommendation (never followed) was to cut workers in on profits as owners instead of demanding a higher (and more costly) wage and benefits package.  Because owners participate in profits, and profits are distributed after costs are taken out, profit sharing does not increase costs to the consumer, keeping prices down.


 

Typically, what happens in a wage bargaining session is that workers manage to wrest a higher fixed wage and benefits package from employers.  Employers are then forced to raise prices to the consumer to maintain profit margins.  This is because conventional wisdom says that the only way to finance new capital formation is out of accumulated savings.  Thus, profits are of necessity reinvested back into the company, and little if any is distributed to the nominal owners of the company.

The argument is that unless the company reinvests its profits, it cannot purchase new capital or replace old capital, and new jobs will not be created, or old ones retained.  Of course, this assumes the validity of the Keynesian assumption that capital only provides the “environment” within which labor becomes productive and is not itself productive.  Increase the amount of capital as much as possible, then, and you increase the number of jobs until you achieve full employment.

Bologna.  The Keynesian assumption falls completely apart once anyone realizes the truth: that technology can directly produce marketable goods and services without any direct labor input at all.  Technology does not merely create an “environment,” it produces goods and services.


 

Any worker that has been displaced from a job by a machine knows full well that technology is itself productive, often with or without a direct labor input.  Advancing technology does not create jobs but destroys them.  The more that is invested in new capital, the fewer jobs there are for human beings.

Strike one — and it’s not the kind of strike in which labor wins, but everyone loses.  After all, if workers do not have jobs, they have no income.  If they have no income, they cannot buy the goods and services technology produces.  Reuther once toured a Ford Motor Company plant that had largely been automated.  The Ford Co. executive twitted Reuther by saying, “You’ll have a hard time collecting dues from those machines, Walter.”  Reuther quickly replied, “You’ll have an even harder time selling them automobiles.”

Is redistribution the answer to disappearing jobs?  Wouldn’t a Universal Basic Income take care of the problem?


 

On paper, the UBI and similar programs sound very fine.  Some people have far more income than they can spend, so take it away and give it to people who will spend it.

There’s just one small problem.  The assumption behind the UBI, the Great Reset, Inclusive or Stakeholder Capitalism, Democratic Socialism, Gift Society, etc., etc., etc., is unjust and contrary to human nature.  You cannot force some people to produce for the benefit of others, and they aren’t going to do it voluntarily in the normal course of events.  Abraham Lincoln perhaps said it best in his debate with Stephen Douglas:


 

It is the eternal struggle between these two principles — right and wrong — throughout the world. They are the two principles that have stood face to face from the beginning of time; and will ever continue to struggle. The one is the common right of humanity, and the other the divine right of kings. It is the same principle in whatever shape it develops itself. It is the same spirit that says, "You toil and work and earn bread, and I'll eat it." No matter in what shape it comes, whether from the mouth of a king who seeks to bestride the people of his own nation and live by the fruit of their labor, or from one race of men as an apology for enslaving another race, it is the same tyrannical principle.

And strike two?

Where does the money come from?  Are workers and others to be given ownership that already belongs to others, whether by redistributing wealth and using it to buy the capital that belongs to the people from whom you took the wealth?  Or do you just redistribute ownership of the capital directly?

Neither one.


 

Commercial and central banking were invented specifically to create money for productive purposes without having to rely on existing accumulations of wealth.  If someone has a sound productive project but no money, he, she, or it makes an offer to a commercial bank.  Simply stated, the deal is that if the commercial bank will provide negotiable promises with which the borrower can purchase capital and put it to productive use, the borrower will repay the bank out of the future profits of the endeavor, plus a fee for the bank’s services.

If the bank agrees that the project is sound — and the borrower is “creditworthy” (meaning he’s honest and will repay the loan) — the bank creates new money, and the borrower uses that money to finance the project.  As soon as the project is profitable, the borrower repays the bank the principal amount of the loan, which then cancels the money it created, essentially selling the debt back to the borrower.


 

Of course, the borrower also pays the bank more money as a fee to compensate the bank for its work and the risk it assumed on the borrower’s behalf.  The bank does not cancel this money, but books it as gross revenue, out of which it pays its costs and realizes a profit.

What if the borrower cannot pay back the loan?  After all, “Stuff” happens.  That is why banks always demand collateral in one form or another.  Even “unsecured” loans are secured by a general claim on the assets of the borrower.

The problem is that our borrower doesn’t have existing wealth.  In that case, Louis Kelso said we should use capital credit insurance and reinsurance, in effect, allowing borrowers without assets to “rent” collateral by paying a fee (the insurance premium) on a policy that will pay off in the event of default.  In that way, the bank will always be able to cancel the money it created, even if the original borrower doesn’t repay the loan.

When workers — and everyone else — become owners, however, will there still be a role for unions?  We think so . . . and it will be much bigger than that of today, and non-adversarial.  And that is what we will cover in the next posting on this subject.

#30#