On November 12, 2013, Annie Lowrey writes in The New York Times:
Every month, every Swiss person would receive a check from the government, no matter how rich or poor, how hardworking or lazy, how old or young. Poverty would disappear. Economists, needless to say, are sharply divided on what would reappear in its place — and whether such a basic-income scheme might have some appeal for other, less socialist countries too.
The proposal is, in part, the brainchild of a German-born artist named Enno Schmidt, a leader in the basic-income movement. He knows it sounds a bit crazy. He thought the same when someone first described the policy to him, too. “I tell people not to think about it for others, but think about it for themselves,” Schmidt told me. “What would you do if you had that income? What if you were taking care of a child or an elderly person?” Schmidt said that the basic income would provide some dignity and security to the poor, especially Europe’s underemployed and unemployed. It would also, he said, help unleash creativity and entrepreneurialism: Switzerland’s workers would feel empowered to work the way they wanted to, rather than the way they had to just to get by. He even went so far as to compare it to a civil rights movement, like women’s suffrage or ending slavery.
When we spoke, Schmidt repeatedly described the policy as “stimmig.” Like many German words, it has no English equivalent, but it means something like “coherent and harmonious,” with a dash of “beauty” thrown in. It is an idea whose time has come, he was saying. And basic-income schemes are having something of a moment, even if they are hardly new. (Thomas Paine was an advocate.) But their renewed popularity says something troubling about the state of rich-world economies.
The proposal is, in part, the brainchild of a German-born artist named Enno Schmidt, a leader in the basic-income movement. He knows it sounds a bit crazy. He thought the same when someone first described the policy to him, too. “I tell people not to think about it for others, but think about it for themselves,” Schmidt told me. “What would you do if you had that income? What if you were taking care of a child or an elderly person?” Schmidt said that the basic income would provide some dignity and security to the poor, especially Europe’s underemployed and unemployed. It would also, he said, help unleash creativity and entrepreneurialism: Switzerland’s workers would feel empowered to work the way they wanted to, rather than the way they had to just to get by. He even went so far as to compare it to a civil rights movement, like women’s suffrage or ending slavery.
When we spoke, Schmidt repeatedly described the policy as “stimmig.” Like many German words, it has no English equivalent, but it means something like “coherent and harmonious,” with a dash of “beauty” thrown in. It is an idea whose time has come, he was saying. And basic-income schemes are having something of a moment, even if they are hardly new. (Thomas Paine was an advocate.) But their renewed popularity says something troubling about the state of rich-world economies.
This is a redistribution scheme in which an income is distributed as a Citizens Dividend or Social Credit secured by tax extraction, though no where in the article is there a reference to where the money would come from. This proposal does not address the issue of concentrated ownership of productive capital assets, or its impact on private property principles, but instead takes from those who are productive and redistribute earnings to those who are not or less productive. What should be the solution is to make EVERY citizen productive, not through a job but through owning wealth-creating, income-producing productive capital assets.
As an alternative that does protect private property principles and is market-based, implement the Capital Homestead Act (http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm). Here is an explanation of the main part of the proposal:
Right now in the United States the Federal Reserve creates money by loaning it to banks, who re-loan it multiple times because of fractional banking rules. With Capital Homesteading, money would be created by loaning it directly to citizens at near-zero interest. To build real wealth and also phase out our near-defunct social security scheme, the new full-reserve money would go into a long-term retirement account to be invested in dividend-paying shares of corporations. That way, money power would be spread to all citizens. The middle class would be invigorated using the principle of compounding interest, instead of being decimated by mushrooming public and personal debt.
For solutions see “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at NationOfChange.org http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624.
In the United States, the reform of the financial system that resulted in the National Banking Act of 1863 restricted the non-rich to the existing (and diminishing) pool of past savings to finance new capital formation and economic development, while the rich could create their own money for the same purpose by issuing bills of exchange. The National Banks and state banks functioned as banks of deposit for the non-rich, severely restricting participation in the economic common good, while they served as banks of issue for the rich, giving them a virtual monopoly over the ownership of new productive capital assets other than homestead land and small ancillary businesses.
Unfortunately, both capitalism and socialism rely on the demonstrably false premise that the only way to finance new productive capital formation is to cut consumption and accumulate money savings; financing for all new productive capital is presumed to come out of the present value of production that was withheld from consumption.
As Harold Moulton demonstrated in The Formation of Capital (1935), reducing consumption (withholding production from consumption) in order to finance new capital formation harms the financial feasibility of the new productive capital the investor intends to finance. It can even, when the investor realizes that there is insufficient consumer demand to justify the new productive capital formation, prevent the new productive capital from being formed in the first place.
Given that, as Adam Smith said, the sole purpose of production is consumption, one can reasonably conclude that it is contrary to the purpose of production to withhold production from consumption in order to finance new productive capital to increase production. More simply put, if we are not consuming all that is being produced now, of what conceivable use is it to increase production?
That is the “economic dilemma” (as Moulton put it) facing the “capitalist,” or (in socialism) the State if it takes over control of the economy. It should be obvious that new productive capital investment must take place if economic activity is to be sustained. At the same time, the individual investor cannot justify financing the formation of additional new productive capital when there is clearly insufficient demand for what existing productive capital is already producing.
It is, to all appearances, a perfect “Catch 22” situation. If the capitalist invests in new productive capital when there is no demand for what the productive capital will produce, he or she will go bankrupt. If, on the other hand, there is a demand for all that is being produced and more besides, there is little or no possibility of withholding anything from consumption to use in financing new productive capital formation.
Past savings — the present value of past cuts in consumption — are not, however, the only or even the best source of financing for new capital formation. There is also “future savings,” that is, the present value of future increases in production. Just as derivatives (“money”) called mortgages can be created using the present value of existing marketable goods and services as the “underlying” asset backing the derivative, derivatives called bills of exchange can be created using the present value of future marketable products and services as the underlying.
Believing — erroneously — that past savings are the only source for financing of new productive capital formation has one of two results. If we believe that the market will take care of things without the State doing more than policing abuses, enforcing contracts, and in general providing a level playing field, we end up with capitalism. Ownership of productive capital must be concentrated in the hands of a private sector elite, for only people whose productive capital assets produce far more than they can consume can afford to finance the formation of new productive capital, thereby providing jobs for the rest of us, to the extent that they are not necessary due to ever-increasing shifts in the technologies of production.
If, however, we believe that the market and private initiative cannot be trusted to take care of things, and that government action is required to both regulate and control the private sector so that everyone will be taken care of adequately and there will be sufficient investment to create enough jobs (whether or not we believe State control will continue to be necessary, or it will wither away), the State must take an ever-increasing role in the economy. That is socialism.
The way to avoid the fallacies of both capitalism and socialism is to realize that new productive capital formation can be financed better using the present value of future increases in production –– future savings –– than by using the present value of past cuts in consumption –– past savings. Reliance on past savings, however (despite its obvious falsity) is accepted as an absolute dogma by all mainstream schools of economics, and virtually all of their offshoots. That is the challenge –– to re-educate.
Of course to succeed practically in creating broadened private, individual ownership of FUTURE productive capital formation, there must be a provision to secure investment. This is where collateral insurance comes in (i.e. the provision of sufficient security to support a loan for productive capital acquisition). Because beneficiaries would be enabled to undertake financing on the strength of non-recourse pure capital credit loans from banks and other lenders, the question of collateral or other satisfactory security security to support the loans is critical. Banks cannot extend pure capital credit without security to cover the risk of the borrower’s inability to repay the loan. Nor can existing owners be saddled with the risk of business failure. Thus the risk of productive capital investment failure (a risk that is now borne primarily by existing owners, but with considerable governmental back-up mediation through economic intervention by way of taxing, borrowing, monetary, regulatory and other powers) can instead be commercially insured with government reinsurers in reserve if necessary. This would be included as an element in the cost of borrowing in the case of each pure capital credit loan to provide financial compensation to the lenders. Similar insurance mechanisms can be employed as used by the U.S. Federal Housing Administration (FHA) to overcome the formidable financial barrier that prevents most people form effective productive capital acquisition. Once we set put on this path to prosperity, opportunity, and economic justice it is an open question whether government involvement (and how much and in what form) is necessary to promote the market provision of pure capital credit insurance. In the writings of binary economist Louis Kelso, he consistently proposed the creation of an agency to operate on the broad principles as practiced by the FHA in providing loan insurance to home buyers. The FHA has experienced decades of profitable success in facilitating the financing of broader home ownership throughout the United States. Instead of financing with insured loans a consumer purchase (a home to live in) we would be financing productive capital asset formation that generates its own earnings out of which to pay back the loan. Capital credit insurance is not a government guarantee. To the contrary, capital credit insurance would be provided only if the premium is competitively attractive in view of the risk insured. Any investment risk that is not insurable on market principles should not be undertaken. The government’s reinsurance corporation would be expected to meet the profitable performance standards of programs like the FHA’s home loan insurance program.
