16. The Slavery of Savings

Another instalment from Mr Greaney.

From The Just Third Way

As we saw in the previous posting in this series, Pope John Paul I came across one stumbling block in the way of implementing a personalist economic order — one that respects the dignity and sovereignty of the human person, but that takes into account the rights of all others as well as people’s “political nature.”  That is the realization (as Daniel Webster said) that, “Power naturally and necessarily follows property.”  True structural change in a society requires reforming institutions — “social habits” — through acts of social justice, and acts of social justice require freedom of association in order to organize effectively for change . . . and John Paul I did not appear to have any specific or legitimate means by which ordinary people could become owners of capital.

Webster: Power follows property.

Yes, “people power” can be very effective in certain social justice objectives, such as reforming the political power structure.  That, however, is limited in scope and does not get down to the level of other institutions, especially private property.

For example, during the civil rights movement in the 1960s, people organized very effectively in social justice for political rights.  Many people in the movement, however, seemed to assume that achieving the goal of securing civil rights meant that reform of all other institutions would come about automatically — which is clearly not the case.

It was essential to take the civil rights movement to the next level, and secure natural rights of life, liberty, and private property as well as the vote.  Instead, the vote was used by and large to secure jobs and welfare, interim measures that in and of themselves actually “perpetuate the plantation” by turning people from dependents of “Ol’ Massa” into dependents of the government.

Cobbett: Without property,
you are a slave.

So why bother with civil rights at all?  Perhaps the English radical William Cobbett said it best:

Freedom is not an empty sound; it is not an abstract idea; it is not a thing that nobody can feel. It means, — and it means nothing else, — the full and quiet enjoyment of your own property. If you have not this, if this be not well secured to you, you may call yourself what you will, but you are a slave.  You may twist the word freedom as long as you please, but at last it comes to quiet enjoyment of your own property, or it comes to nothing. Why do men want any of those things that are called political rights and privileges? Why do they, for instance, want to vote at elections for members of parliament? Oh! Because they shall then have an influence over the conduct of those members. And of what use is that? Oh! Then they will prevent the members from doing wrong. What wrong? Why, imposing taxes that ought not to be paid. That is all; that is the use, and the only use, of any right or privilege that men in general can have.  (A History of the Protestant Reformation in England and Ireland, 1827, §456.)

That, of course, is all very well and good, and underscores the importance of what Popes Leo XIII and Pius XI said about widespread capital ownership.  It does not, however, get around the basic problem of how people are supposed to become owners when they have no savings and their income is either non-existent or insufficient to allow for saving in the required amounts.

The spinning jenny replaced hand spinning.

And that creates a problem.  When labor is the primary input to production, technology tends to be simple — and affordable.  Advances in technology at that level tend to create jobs because labor is at a premium, and anything that makes production easier also makes labor cheaper and thus more affordable.

At some point, however, advancing technology “bids down” the premium on labor by becoming more productive than labor to the point where it no longer pays to add labor, but to replace labor with technology.  The advantage previously enjoyed by owners of labor shifts to owners of technology.

Adding to the problem is the fact that advanced technology, while it can carry out the same production better and cheaper than labor on a per unit basis, is generally much too expensive for most people to afford.  As a result, owners of labor displaced by technology in production also find themselves displaced by owners of technology in income.

The obvious solution is that people displaced by technology must be put in the position of somehow receiving the benefits of technology.  Several alternatives have been developed over the past two centuries or so in an effort to do this, such as paying people on the basis of what they need instead of what they produce, or just flat out redistributing wealth.

Leo XIII: as many as possible should own.

The only viable solution, however, is exactly what Leo XIII and Pius XI said: turn as many people as possible into owners of the technology that is displacing them.   As Louis Kelso once put it, “If the machine wants our job, let’s buy it!”

This, however, gets right back to the same problem: how are people supposed to buy the machines that displace them from their jobs if they don’t have savings, and suddenly don’t have jobs that pay them enough to be able to save?

The answer, as Louis Kelso saw it, was to apply basic principles of finance to the problem.  Although most people don’t seem to realize it, most business enterprises do not first accumulate cash and then purchase productive technology.

No, what companies do is sign a contract agreeing to pay for the new capital out of the future profits of the capital itself, i.e., future savings instead of past savings.  The way to finance new capital formation is not by having reduced consumption in the past, but by increasing production in the future.

Kelso: replace past savings with future savings.

There are a great many complicated sounding institutional and structural reforms that would be necessary to enable every child, woman, and man to be able to use the “future savings technique” to be able to purchase “self-liquidating” capital, but that is the essence.  People don’t need to save first and then purchase capital, which is often insufficient, anyway.

Instead, people can first purchase capital and then pay for it.  As long as the capital can pay for itself within a reasonable period of time, it doesn’t make any difference how much capital is purchased.  The amount of capital that can be financed in this way is limited only by the actual capital needs of an economy, not by what people have managed to save.

Nor is it necessary to redistribute existing wealth to make everyone a capital owner or deprive anyone of his or her rights.  The only thing the currently wealthy would lose is their virtual monopoly over the ownership of future wealth creation — which is not something they legitimately have, anyway.  You own what you own today.  You do not own what does not exist today.

If this is so simple, however, why isn’t it being done right now, especially with the world in such terrible shape?  We will start to look at that in the next posting in this series.