As we’ve said a number of times on this blog, we like to get questions, as answering them tends to make our lives a little easier. For one thing, it means we don’t have to stop and think about what to write that will interest readers, as the readers have already told us what they’re interested in.
That being said, this question — or, rather, series of questions — needs a little background information. As some of you may know, we have been trying to figure out a way to get to President Zelenskyy of Ukraine in order to present him with an alternative to the Same Old Thing for financing the rebuilding of Ukraine once Putin and his goons are booted out of the country.
As part of that effort, we’ve been asking friends and neighbors if they have any contacts in Ukraine who might be able to help us meet with Zelenskyy. Recently, we got a list of about half a dozen or so, and sent them the following letter:
I am Director of Research for the interfaith Center for Economic and Social Justice (CESJ), a non-profit educational and research think tank in Arlington, Virginia. I was referred to you by Mr. X. CESJ’s expertise is in the theory and practice of participatory economic development through expanded ownership financed in ways that do not rely on redistribution of existing wealth or increases in taxation or government debt. We would like your help in presenting these ideas to the proper authorities for consideration.
CESJ’s approach, which we now call “the Just Third Way of Economic Personalism,” is a democratic, financially sound, private property-based approach to economic development. U.S. President Ronald Reagan endorsed this approach in the speech he gave to CESJ’s Presidential Task Force on Project Economic Justice. His Holiness Pope John Paul II encouraged it in a private audience he granted to members of CESJ and Polish Solidarność.
CESJ’s team includes Dr. Norman G. Kurland, president of CESJ. As you can see from this short bio on the CESJ website, Norm is an acknowledged expert in the field of expanded ownership and corporate finance. Ms. Dawn Brohawn, CESJ’s Director of Communications, is also a key member of the team.
In addition to my work with CESJ, I was for many years professionally involved with administering ESOPs. I have written books and articles on expanded capital ownership, finance, and other subjects. Most recently with Dawn I co-authored Economic Personalism: Property, Power and Justice for Every Person (2020) and The Greater Reset: Reclaiming Personal Sovereignty Under Natural Law (2022).
We would like to meet with you via Zoom at your earliest convenience to discuss how CESJ’s Just Third Way can be presented to people in Ukraine. In particular, we think President Zelenskyy, with his law and economics background is uniquely prepared to grasp the implications of our program.
Yours in justice, etc.
We thought this was pretty clear — we want to get to Zelenskyy and let him know about a potential source of funding to rebuild Ukraine. It was a little startling, then, to receive this response:
Thank you for reaching out. Apologies for the late response. I’m flattered that you have contacted me. However, I’m a bit confused as to what you want to do and how I can help.
I looked at your website. As I understand, you want to develop cooperatives and cooperative banks (much like in the US) but introduce your new tax-sheltered Homestead Account as an alternative or supplement to today’s IRAs and 401K plans. The idea would be to promote employee buy-in of big business. I realize that this is a very cursory understanding, but do I have that right?
So how does that work in the context of Reconstruction of Ukraine? There’s not enough private personal capital in Ukraine right now to make substantial inroads into its oligarchic economy. The dent currently being done to the oligarchs is the war and the economic downturn. As well as certain nationalization / expropriation being done by Ukraine.
If you wish to lobby Zelensky with this idea, then I can introduce you to a friend of mine who is a professional lobbyist - lobbying primarily the Ukrainian government. He’s currently working with some reconstruction efforts.
I’m not a lobbyist. I’m a lawyer. Not sure what I can do for you.
However, I’m happy to explore.
My best, etc.
At least the individual replied, which is more than most do. Still, it was a little off-putting to think we had been so unclear as to what we meant. Still, we felt his questions deserved a response and a follow-up phone call, so we sent the following:
Thank you for getting back to us. I can understand your confusion, and I’ve attached a short “executive summary” of what we’re talking about. Not to get too technical, but what we would propose is a complete reform of the current method of creating money and financing new capital in a way that builds ownership of the new capital into every citizen of Ukraine, and gets away from the current system that concentrates ownership and thus power, but without redistribution of existing wealth that already belongs to others, either through direct confiscation or government-induced inflation.
The fixed — and incorrect — idea prevalent in the world today is that money and credit are a commodity. Thus, the only way anyone can become an owner is to cut consumption and accumulate the surplus as money savings. In other words, the only way to finance economic growth is to have money first, which can be used to acquire value. In reality, money and credit are not a commodity in limited supply, but a “social tool” by means of which people measure and carry out exchanges.
For example, most people today assume that if A wants to purchase capital from B, A must have the money, and B must have the capital. Centuries of corporate finance prove this assumption wrong. Both A and B can start with nothing, but A can go to B and say, “If you will provide me with the capital instruments I need to produce a marketable good, I will pay you out of my future profits.” B can say, “I accept your offer. I will undertake to ‘form’ your new capital tomorrow, and it will be complete by such-and-such a date. X number of days after that, you will pay me a portion of your profits until the debt to me is satisfied.” The moment B accepts A’s offer, a contract exists (offer, acceptance, consideration) and money has been created. There was no need for pre-existing savings, the savings will be generated in the future when A puts the new capital into production.
Commercial/mercantile and central banks were invented to create money in this way. Someone presents an offer to the bank, the bank decides it has value, and creates new money backed by the present value of the proposal. It is not necessary, strictly speaking, for money to exist before it is needed. Unfortunately, most people, even bankers today, aren’t aware that commercial and central banks can create money in this fashion and assume they are a different type of bank that can only lend existing funds that have been deposited in the bank. This restricts what can be financed to the amount of existing savings in the system, i.e., what can be financed is limited to the value of what has not been consumed. In reality, commercial banking is limited only by what can be produced in the future, not withheld from consumption in the past. There is no need for government to issue unbacked debt to provide “savings” to finance growth, i.e., provide money for banks to lend, for commercial and central banks can create — not pre-create — money in the way they were invented to do, without inflation or raising taxes, but only when presented with something of definable value.
|Dr. Harold G. Moulton|
As Dr. Harold Moulton of the Brookings Institution demonstrated in his 1935 book refuting Keynesian “past savings” theory, The Formation of Capital, this is the way rapid economic growth has usually been financed, even (or especially) during periods of low or even negative saving: an expansion of bank credit. Moulton examined the period in the U.S. from the 1830s to the 1930s and discovered what most people said was impossible had actually happened: following the Civil War when the currency was being deflated to restore parity with gold and savings had been drained out of the system, the United States experienced one of the most rapid periods of economic growth in human history. As Moulton demonstrated, this was not out of existing savings or by issuing government debt (the entire national debt could have been repaid a number of times over had it not been for the mistaken belief that it was needed to back the reserve currencies, e.g., the United States Notes, the National Bank Notes and the Treasury Notes of 1890), but by the commercial banking system, even without a central bank.
|Louis O. Kelso|
What Louis Kelso realized (and that CESJ proposes) is that if this technique of corporate finance can be used to make the rich richer, it can be used to turn ordinary non-rich people into capital owners on the same terms. He invented the Employee Stock Ownership Plan (ESOP) to apply his theories, and co-authored two books with Mortimer Adler, The Capitalist Manifesto (1958) and The New Capitalists (1961), to explain them. The Capitalist Manifesto actually made the New York Times bestseller list (briefly) soon after it was released in January of 1958. While there were a few hundred ESOPs in the U.S. prior to 1974, it was when Kelso and Norman Kurland, CESJ’s president (at that time Kelso’s Washington Counsel) met with Senator Russell Long that legislation was adopted favoring ESOPs. Since then, millions of workers have become part owners of the companies that employ them, usually without putting up their savings or taking cuts in pay.
The problem with the ESOP, however, is that it applies only to those employed by corporations. What we propose is that every citizen of Ukraine be empowered to become a capital owner using the same money creation techniques described by Moulton and the ownership-building vehicles invented by Kelso. This answers the question of where to get the money (which is worrying Mr. Zelenskyy), for money is not created by guesswork using government debt or by borrowing from others’ existing savings, but out of the future productive capacity of Ukraine itself — which is immense, once Putin has been driven out — and only after specific and financially feasible projects have been presented for financing. It also answers the question of how individual citizens will benefit directly: first by the jobs created, but more importantly and in the long-term by participating fully in the economic life of the country as owners of capital. U.S. President Ronald Reagan called for an “Industrial Homestead Act” while governor of California in the 1970s, while Pope John Paul II encouraged us in our work and reportedly recommended it on three occasions to visiting heads of state. As Pope Leo XIII said in 1891, the law should favor ownership and its policy should be to ensure that as many as possible of the people prefer to own. We propose a realistic way to do that which does not require taking away what anyone already owns or manipulating the money supply.
|Norman G. Kurland|
I tried to be brief, but as you can see, there are a great many details I don’t mention and others I only hint at. It would be good to have Norm himself answer your questions, as, frankly, I’m only a “technician,” and tend to jump into the theory and mechanical details, while Norm can give you the big picture. He has also actually gotten legislation passed, which I have not. He also has a law and economics background from the University of Chicago, and I understand Mr. Zelenskyy also has a law and economics degree. If you’d like to talk with Norm, feel free to call him direct here in Northern Virginia. I’m copying him on this email, just in case.
Yours in justice, etc.
Despite this, we kind of got the brush-off when we followed up with a phone call. This was all the more disappointing as the individual had worked with someone with whom we had worked before, and who should have been able to give a clearer picture of what we are talking about. Still, we keep on trying.