On April 9, 2020, Hamilton Nolan writes In The Times:
Whether Americans know it or not, their government is not working for them. Their government is working on behalf of capital. Humans are now a mere second-order, instrumental factor to be considered based on how it affects capital.
People watch the arrival of the USNS Comfort Ship on March 30, 2020 in New York as seen from Weehawken, New Jersey. The naval hospital has 1,000 beds and 12 operating rooms. The Comfort will not treat Covid-19 patients. (Photo by Kena Betancur/ VIEWpress via Getty Images)
Fantasize for a moment that we could set aside politics and operate based upon common sense. What would the federal government do to best mitigate the devastation that this pandemic will visit upon human beings? It would, first of all, provide free healthcare to everyone. It would distribute medical resources nationally based on the greatest need. Then, to protect people from the necessary economic deep freeze we are all in due to social distancing, the government would pursue measures that would get everyone through this time in one piece: It would subsidize the nation’s payrolls, so that workers could stay in their jobs and businesses could restart easily; it would suspend rent, for people and businesses alike; it would send everyone a monthly basic income to pay for necessities until this is over; and it would avoid allowing small businesses to go bankrupt, because those represent millions of jobs that people need to return to.
Those are all obvious steps to take if your goal was to protect humans. But imagine, instead, if you had an entirely different goal: protecting capital. What would you do then? Well, you would prioritize the health of corporate balance sheets, rather than human bodies. You would keep the healthcare industry, now booming, in private hands; you would stimulate consumer demand via unemployment benefits, rather than by keeping workers on existing payrolls, in order to create an enormous pool of cheap and desperate labor; you would pursue tax cuts for the investor class; you would welcome the opportunity to allow debt to pile up on individuals; and you wouldn’t be too sad about small businesses going bankrupt—they are, after all, just ceding market share to bigger, richer businesses. You would use this crisis to create a greater, not lesser, concentration of wealth. You would emerge on the other side with more, not less, inequality. The truth is, it would be easy.
Now, guess what the U.S. federal government is doing? It is allowing the unemployment rate to skyrocket, as tens of millions of workers are fired; it is allowing countless small businesses to go bankrupt, from incompetence and neglect; it has not even considered a national suspension of rent, nor a strong national policy of paid sick leave, much less a national system of free public healthcare; as millions of needy people struggle with decrepit and broken state unemployment systems and wait weeks or months for their emergency checks to come, and essential workers are forced to agitate or walk out to gain hazard pay, the administration plots a new bill featuring a capital gains tax cut and “a waiver that would clear businesses of liability from employees who contract the coronavirus on the job.”
We are told we’re a nation at war. In real wars, we have higher taxes on the rich. This time, we are giving investors a tax cut.
Whether Americans know it or not, their government is not working for them. Their government is working on behalf of capital. Humans are now a mere second-order, instrumental factor to be considered based on how it affects capital. In this perilous time, capital must be protected and nurtured, and we must draw resources from our entire society in order to help capital survive, in the same way that the body will draw blood from other organs to save the brain. People can be sacrificed—capital is irreplaceable. We are navigating our way through this so that capital comes out okay on the other side. It is no exaggeration to say that tens or hundreds of thousands of Americans will die because we are choosing this approach, rather than an approach that prioritizes human life. They will die because we did not dedicate resources before this pandemic to building an adequate system of public health care, and they will die because we made the decision during this pandemic to put the needs of capital first. We did not keep working people on payrolls, because that would be less advantageous for the owners of capital. We did not nationalize factories, nor pharmaceuticals, because that would be less advantageous to the owners of capital. And of course we did not release the prisoners in the jails being ravaged by this disease. What would that do for the stock market?
When this is all over, politicians will stand up and say that the heroes of this crisis were the doctors and the nurses and the grocery workers who kept going, because we needed them to. But that will not be true. Doctors are getting pay cuts because they are no longer making revenue for their employers with nonessential procedures; nurses are becoming sick and dying because we didn’t stockpile enough cheap plastic masks; grocery workers are forced to beg and plead and strike for a couple of dollars extra per hour, at the risk of their own lives. The true heroes of this crisis, from the perspective of those in charge, will be the private equity firms that rush in to buy up distressed businesses, and the hedge funds that pour money into cheap debt, and the investors that scoop up the homes that people will be evicted from. They are the ones that renew the blood of capital, you see. They are the ones that will rescue us. They are the ones who will shepherd our precious capital through this dangerous time, and into the promised land.
They will have earned their capital gains tax cut and legal protections and government bailout and their hefty profits. Where else do the ten million of you people who are now unemployed expect to get jobs after this? Hm? Be grateful. Your willingness to work for very little after this means that you may be valuable enough to make it profitable to not let you die. Congratulations.
Gary Reber Comments:
Why is it that educated people cannot see the weakness of the wage slave system, which continues to be their go-to solution, as in “job creation?” How is it that the vast majority of Americans virtually never learn about why the rich get so much richer every year while everyone else gets left behind?
Writers continually knock those who own capital. Just what is capital? In simple terms, capital is the non-human factor of production (productive land; structures; infrastructure; tools; machines; robotics; computer processing and apps; artificial intelligence, certain intangibles that have the characteristics of property, such as patents and trade or firm names and the like, which are owned by people individually or in association with otherindividuals). On the smallest scale it can be simply a lawnmower owned by your gardner, a set of professional knives owned by your local butcher, a computer owned by a writer, or all manner of such seemingly insignificant tools owned by individuals to produce something of value. On a larger scale it can represent sophisticated machinery and automated production, and the building infrastructure that houses this productive capacity. This can be owned by an individual or many individuals with different levels of ownership stakes in the enterprise. The composition from small to large is expansive across all economic sectors. The owners of capital earn income or corporate dividends via the application of their “tools” to the productive process.
The other factor of production that receives the most attention is the human factor (labor workers who contribute manual, intellectual, creative and entrepreneurial work). Human labor workers earn wages and salaries for working for the owners of productive capital who employ them. Some workers are self-employed and own the necessary capital tools to execute their occupation.
Fundamentally, economic value is created through human and non-human contributions.
NOTE, real physical productive capital isn’t money; it is measured in money (financial capital), but it is really producing power and earning power through ownership of the non-human factor of production organized through businesses, owned by individuals or assemblages of people. Financial capital, such as stocks and bonds, is just an ownership claim on the productive power of real capital. In the law, property is the bundle of rights that determines one’s relationship to things. As binary economist Louis Kelso and co-author Patricia Hetter put it, “Money is not a part of the visible sector of the economy; people do not consume money. Money is not a physical factor of production, but rather a yardstick for measuring economic input, economic outtake and the relative values of the real goods and services of the economic world. Money provides a method of measuring obligations, rights, powers and privileges. It provides a means whereby certain individuals can accumulate claims against others, or against the economy as a whole, or against many economies. It is a system of symbols that many economists substitute for the visible sector and its productive enterprises, goods, products and services, thereby losing sight of the fact that a monetary system is a part only of the invisible sector of the economy, and that its adequacy can only be measured by its effect upon the visible sector.”
The reality is 98 percent represents the productive capital factor input to creating goods and services in our economy. In concentrated capital ownership terms, the estimates are roughly 1 percent own 50 percent of the corporate wealth with 10 percent owning 90 percent. This leaves 90 percent of the people scrambling for the last 10 percent, with them dependent on their labor worker wages to purchase capital assets and speculate (gamble) on securities exchanges purchasing stock previously owned. Thus, we have the great bulk of the people providing a mere 10 percent or less of the productive input. Contrast that to the less than 5 percent who own all the productive capital providing 90 percent or more of the productive input, and who initiate and oversee most of the technological advances that replace labor “work” by workers with capital “work” by the owners of productive capital assets. As a result, the trend has been to diminish the importance of employment with productive capital ownership concentrating faster than ever, while technological change makes physical capital ever more productive. Corporate decision makers know this, whether in the United States or Communist China, or anywhere organized assemblies of people engage in production.
Technology is an easier and faster way to get a job done with quality consistency. Because technology increases the profitability of companies throughout the world, technology always has the advantage over human labor when the costs of them are the same. But because this is not well understood, what we as a society have been doing is to continually shift the work burden from people labor to real physical capital while distributing the earning capacity of physical capital’s “work” (via capital ownership of stock in corporations) to non-owners through government make-work job creation, minimum wage requirements, and welfare programs. Such policies do not function effectively.
We can no longer simply pursue the same old paradigm that believes the economy will be saved if fixed wages and benefits are continually increased with Americans solely dependent on a job to earn a living. The irony that the higher fixed wages go, the worse off workers become seems to escape those in the old paradigm as the price level rises more than the wage increase, and workers get replaced by less expensive machinery and/or the controlling business owners shift production to low cost slave-wage labor countries wherein they have no responsibility for health care or retirement, where environmental controls and pollution controls are non-existent. As a result profits to the corporation owners can soar.
The reason American workers have suffered a devastating loss of economic power over the past four decades, is two-fold: 1) As unions and workers demanded increases in wages and benefits for the same worker input, the controlling owners of corporations began to automate their production and in the process, they owned greater asset values; 2) they also sought to significantly lower the cost of labor and other cost factors, such as regulations and taxes, by shuttering manufactories in our homeland and investing in developing countries, such as Communist China and other slave-wage Asian countries, who welcomed the American investment, technology-sharing, and opportunity to develop their manufacturing capabilities.
Unfortunately, our political leaders over the past five decades have paved the way for an exodus of our manufacturing, led by the controlling owners of American corporations and industries, and their political allies, resulting in direct investment in the development and execution of manufacturing in slave-wage countries. Aided by years of massive tax cuts and incentives they built manufactories and offices around the world, shutting down manufactories and jobs in our homeland. This investment and exodus have enabled those countries to build their productive and technological capabilities, and in the case of Communist China become the world’s manufactory, while thousands of factories were shut down and millions of jobs were eliminated in the United States.
For the controlling owners of American corporations, it was cheaper to relocate production offshore, invest and manufacture goods offshore, and import back the products to the United States. Expanded free trade was supported with tax breaks to corporations offshoring production. Thus, production and importing back for American consumption was made even cheaper and thus more profitable still.
The actions that got the United States where we are today include the failure to take United Auto Workers Walter Reuther’s advice to keep wages where they are and help workers get their increases from the bottom line. Reuther warned that higher wages would destroy entire industries by lowering their competitiveness in international trade. Had we taken Reuther’s advice, businesses would not have set up shop in slave-wage countries like China.
Why is broadening ownership of productive capital so important? Ownership entails reaping the fruits of all contributions that one makes proportionately to the productive process, whether via the productive capital one owns or one’s labor, or both. A person’s labor is compensated either by wages or by a share of what the enterprise produces that is attributable to their labor contribution. It is important for ALL the employees to own shares of the companies that employ them to build a productivity culture throughout the organization. Owning thereby entitles workers to the rewards of their own labor as well as that produced by their proportionate share of the physical capital.
No one knows how much disruption our interconnected and service-oriented economy can endure, especially since the past few decades have seen a debilitating decline in and rapid exodus of our manufacturing capabilities. We should have instead been in constant retooling mode with restoration of our manufacturing capabilities and constant technological improvement through research and development. As a result, we no longer manufacture the clothing, appliances, electronics, furniture, cars, infrastructure materials, lifesaving medical equipment, medicines and all manner of supply chain production, necessary to live and consume in today’s world.
The net effect has been a significant drop in our homeland production and our growing dependency on foreign production. Regrettably, producer-corporations have unnecessarily extended their supply chains and finished goods manufacturing to all parts of the globe and invested in lower-cost foreign production in order to boost short-run profits and share prices for their owners. As a result, the American economy is exceedingly vulnerable to external shocks to our supply chains as the world’s supply chains are fixing to buckle and freeze-up, thereby causing production and incomes to fall abruptly. In turn, shrunken incomes and cash flows will collapse the edifice of non-productive debt and speculation that has been piled atop the American economy.
For corporations still remaining and producing in our homeland, they are, for the most part, engaged in supplying services, such as Amazon who distributes goods manufactured abroad and in our homeland, or Federal Express who carries the goods to their allocated destinations. These are just two examples. These corporation, as with the vast majority, are narrowly owned with the controlling owners calling the shots.
Of course, there are some manufactories left that continue to produce goods in our homeland rather than having their goods produced abroad. But for the part, our businesses are engaged in providing services, food, fuel and entertainment, such as independent and chain restaurants, movie theatre chains, gasoline stations, independent retailers and chains, agricultural farming etc. There are hundreds of service-purposed categories.
An excellent exercise I encourage everyone to practice, especially with your children, is to point out businesses and wonder out loud “who owns that.” We really need to become educated about “Who owns America.”
The current COVID-19 crisis that has impacted our economy should finally make everybody realize that there needs to be self-sufficiency for EVERY individual and the country. We must decouple our manufacturing reliance on other countries, to the greatest extent possible, and fully develop our economic infrastructure to produce in our homeland.
Writers on the subject consistently fail to recognize and address that in the United States, and for that matter, everywhere in the world, productive capital is increasingly the source of economic growth. Logically, if this is an undeniable fact, shouldn’t productive capital become the source of added property ownership incomes for all? If one simply postulates that if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. This is the logical approach to prevent costs and prices from rising due to inflated fixed wages and benefits. Yet, sadly, the American people and its leaders, still pretend to believe that labor is becoming more productive and couch all policy directions in the name of job creation and wage increases, while envying the wealthy capital asset ownership class. Americans ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital asset portfolios simultaneously with the growth of the economy, and create consumption demand.
No matter how much labor is necessary or unnecessary in the economy, it is imperative that the issue of concentrated capital ownership is addressed, and policies are enacted to simultaneously create new capital owners of the corporations growing the economy, both established and viable start-ups,as the economy grows.
We need to simultaneously ensure equal opportunity for EVERY child, woman, and man to acquire ownership stakes in the wealth-creating, income-producing productive assets as they are formed and our economy grows, not just focus only on job creation. This can be achieved without the requirement of holding a job or having or pledging past savings to risk by using insured, interest-free capital credit, solely repayable with the full future pre-tax earnings of the investments. The loans would be insured using private capital credit insurance or public insurance. Government guarantees all sorts of things: loans, contracts, etc. It’s not novel for the public sector to provide guarantees.
One feasible way to significantly broaden capital ownership simultaneously with the responsible growth of the economy is to lift ownership-concentrating Federal Reserve System credit barriers and other institutional barriers that have historically separated owners from non-owners and link tax and monetary reforms to the goal of expanded capital ownership. Removing barriers that inhibit or prevent ordinary people from purchasing capital that pays for itself out of its own future earnings is paramount as an actionable policy. This can be done under the existing legal powers of each of the 12 Federal Reserve regional banks, and will not add to the already unsustainable debt of the federal government or raise taxes on ordinary taxpayers.
The Federal Reserve Bank should be used to provide interest-free capital credit (including only transaction and risk premiums) and monetize each capital formation transaction, determined by the same expertise that determines it today –– management and banks –– that each transaction is viably feasible so that there is virtually no risk in the Federal Reserve. The first layer of risk would be taken by commercial credit insurers, backed by a new government corporation –– the Capital Diffusion Reinsurance Corporation (CDRC) –– through which the loans would be guaranteed. The CDRC would reinsure any portion of any financing risk assessed as reasonable and insurable but not already insured by the commercial capital credit insurance underwriters. In establishing the CDRC, the federal government would not be undertaking a new responsibility but merely simplifying and rationalizing an existing one. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.
The Capital Diffusion Reinsurance Corporation would function similar to the Federal Housing Administration, generally known as “FHA”, which provides mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. The FHA insures mortgages on single family and multifamily homes including manufactured homes. FHA borrowers pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan. While pay-downs on home mortgages require a separate source of income, capital credit for productive capital formation is self-liquidating, with the earnings from the investment the source of the pay-down.
Members of the Federal Reserve need to wake-up and implement Section 13 paragraph 2, which directs the Federal Reserve to create credit for local banks to make loans to finance economic growth. We should not destroy the Federal Reserve or make it a political extension of the Treasury Department, but instead reform it so that the American citizens in each of the 12 Federal Reserve Regions become the owners, who would regulate the monetization process. The result will be that money power will flow from the bottom up, not from the top down, not for consumer credit, not for credit that doesn’t pay for itself or non-productive uses of credit, but for credit for productive uses to expand the economy’s rate of socially responsible and environmentally enhanced growth.
By implementing Section 13 of the Federal Reserve Act the central bank can be used as a means to make every American a productive capital owner, serving as the only alternative to the two twin oligarchies of capitalism and socialism.
The bottom line is that American prosperity must be inclusive, with equal opportunity for EVERY citizen to gain ownership stakes in the corporations growing the economy and to share profits and productivity gains across the economic spectrum. We must include non-managerial and managerial workers, current shareholders, workers not employed in corporations and non-employed citizens –– of every age, race, color and ethnicity.
The key issue in the post COVID-19 economic crisis will not be a lack of new money, but a lack of new owners of productive capital, resulting from a lack of a monetary system that universalizes equal opportunities for every person to access and acquire ownership stakes in the productive capabilities to be developed to meet future economic needs. Had stimulus packages in previous years been designed to create new owners along with new capital formation, our economy would have experienced sustainable and non-inflationary growth. More resources would have been available, and more people would have been economically secure and not dependent solely on jobs to deal with disasters such as the COVID-19 pandemic.
As a matter of national policy, immediately enact the Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) proposed by the Center for Economic and Social Justice (www.CESJ.org). The act would establish citizen tax-sheltered Capital Homestead Accounts (CHAs) for each citizen (see http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/).
The Act provides for the post-pandemic response to reform the system for inclusive growth and prosperity, broadening capital ownership simultaneously. The financial instruments and tools provided in the Act would empower EVERY citizen to transition from a non-owning wage or welfare slave, beholden to those who are owners or the government, into an economically independent owner of wealth-creating, income-generating productive capital.
To build a future economy, self-liquidating zero percent interest capital credit loans, collateralized by capital credit insurance, would be equally allocated, on an annual basis based on the projected capital needs of businesses, to EVERY citizen (children, women and men, from birth to death) exclusively for the purpose of investing in the new growth and transferred capital of the economy. These loans would cover all costs of purchasing voting, full-dividend payout shares of corporations and cooperatives that produce goods and services for potential national and global consumers.
The access to insured, self-liquidating zero percent interest capital credit loans would have to be truly universal to remove the stigma attached to means-tested programs such as food stamps. An equal amount of annual capital credit would go to everyone, whether they’re employed or not. No strings attached. No means test. No politicians demanding that you seek out even a menial job before getting the loans.
Each citizen’s capital acquisition loans would be wholly repayable with the full pre-tax stream of future profits earned on the shares, without any requirement to pledge past personal savings or reduce salaries, wages or benefits to invest.
The new monies would be used to invest in responsible and sustainable, environmentally sound growth projects and infrastructure, including alternative energy expansion and other climate crisis mitigation. These new development projects would hire workers in addition to creating new owners. This will be necessary since the current crisis will mean conventional private business investment will collapse across the board and such much needed investment will no longer be forthcoming from the private sector to revive the economy and create general affluence for EVERY citizen.
With the new monies, all manner of environmentally enhanced and sustainable projects can be planned and executed such as clean energy expansion, carbon pollution elimination, public transit development, robust infrastructure construction, smart grid expansion, green building, new “smart” cities, urban redevelopment, housing developments, homeland manufacturing capabilities, etc.
We need to use the powerful and proper function of commercial banks to create money by making loans and canceling money once loans are repaid. For this, commercial banks charge a one-time service fee (not interest) to cover administrative costs. Therefore, creating money can be entirely interest free (but not cost free). In addition to the principal to be repaid on interest-free capital credit loans to citizens, there would be a one-time premium to cover the risk of loan default as well as reasonable charges for the services of the Federal Reserve and commercial bank lenders.
In immediate and future time frames, we must ensure that federal government grants and loans do not end up with corporations whose controlling owners would buy back their stock, in order to reduce the number of shares so the remaining shareholders can consolidate more ownership, and buy up the assets auctioned off by corporations that go out of business during the pandemic. Otherwise, without ownership-broadening stipulations tied to grants and loans, the result will be the ownership of our nation’s wealth will become even more concentrated than before the pandemic struck. Consequently, there will be more Americans poorer as poverty spreads while multi-millionaires and billionaires become wealthier.
As the economy recovers, all money backed by government debt should be gradually retired and replaced with money backed by private-sector productive capital assets.
After termination of necessary emergency financing, EVERY citizen would be able to establish a Capital Homestead Account (CHA) that is legally advantaged to acquire new qualified full-dividend payout, voting shares of any corporation with fully insured, interest-free capital credit. A one-time premium to cover the risk of loan default as well as reasonable charges for the services of the central bank and bank lenders would be in addition to the principal to be repaid on capital credit loans to citizens. The corporations eligible would be both established and startups, and would use the money exclusively to fund viable projects to grow the economy. CHAs, as with the temporary ECHAs, would make the debt service payments with pre-tax dividends to Federal Reserve-backed commercial banks issuing the capital credit, and afterwards, upon liquidation, paid to citizen beneficiaries as regular taxable personal income.
Further economic measures will be needed to address the recession and recovery.
To meet the full costs of the government and start paying down its debt, a single tax rate should be imposed for all incomes from all sources above personal and family exemption levels so that the budget could be balanced automatically and even allow the government to pay off the growing unsustainable long-term national debt. The exemption should be sufficient to meet each citizen’s or family’s common domestic needs. The poor would pay the first dollar over their exemption levels as would the hedge fund operator and others now earning billions of dollars from capital gains, dividends, rents and other property incomes which under some tax proposals would be exempted from any taxes. Other personal taxes, such as payroll taxes, should be phased out. Remove all tax loopholes to eliminate corporate and personal tax avoidance, and business subsidies. Pay out of general revenues for all promises for Social Security, Medicare, government pensions, health, education, rent and subsistence vouchers for the poor until their new jobs and ownership accumulations provide new incomes to substitute for the taxpayer dollars to fill these needs.
To encourage full payout of corporate pre-tax earnings and finance new capital formation through the issuance and sale of new shares, dividends should be tax-deductible at the corporate level, enabling corporations to reduce their tax liability to zero. Dividends should be taxed as personal consumption incomes, except when used to pay for “qualified” shares (i.e., shares meeting required standards) held within each citizen’s tax-sheltered trust account. To pressure corporations to finance their growth, other than with retained earnings and corporation debt (neither of which creates any new owners), and pay out their full earnings as dividends to their actual owners, the corporate tax rate should be raised to at least 90 percent.
To overcome the COVID-19 pandemic threatening our lives and our economy will require leadership, resolve, scientific knowledge, planning and resources. We must adopt laws promoting major reforms in monetary policy, central banking, tax and other laws for establishing a sustainable, resilient and just economy. Through a new visionary political and economic paradigm, we can build for EVERY person a more environmentally sound and sustainable economy that secures and enhances our personal futures, with preparedness to deal with future crises.
One sign of hope is the pandemic has turned millions of people into good neighbors with a sense of realization that we are all interdependent on each other. Hopefully that can translate to reforming the system so that ownership and power concentration can be reversed with EVERY child, woman, and man having the right to property and equal opportunity access to the means of acquiring and possessing property to enhance the economic security, safety, and well-being of ALL. This will ensure inclusive prosperity and economic justice as our nation progresses into the future in harmony with all the people on Earth.
Note: Some of the opinions expressed in this article are mine and not CESJ’s. Dawn Brohawn, Michael D. Greaney, and other CESJ colleagues contributed to this article.
Gary Reber is the founder and Executive Director of For Economic Justice (www.foreconomicjustice.org), a critic of economic policy and economic inequality, and an advocate and author for economic justice through broadened ownership of wealth-creating, income-producing physical productive capital. Mr. Reber is a board member of the Center for Economic and Social Justice (CESJ) and a founding member of the Coalition for Capital Homesteading. In 1967, Mr. Reber founded with binary economist, ESOP inventor, financial lawyer and universal citizen ownership theorist Louis O. Kelso, Agenda 2000 Incorporated to advocate policies and programs to broaden productive capital ownership in urban and economic development projects.
