A Kelsonian Response to COG

[OWNCO@aol.com]

To:           COG Network
From:       Norm Kurland, President, Center for Economic and Social Justice

Subject:    A Kelsonian Critique of Initial COG Proposals
Date:       Labor Day1999 (Worker Empowerment Day in the future)


First, I want to express my enthusiasm and congratulations to COG and the 
growing network of people and organizations interested in making broad-based 
capital ownership a fundamental human right and a universal right of 
citizenship.  This goal is the most serious moral omission in most social 
justice initiatives throughout human history and within all nations, 
capitalist as well as socialist.

We in CESJ believe the goal itself should be imbedded in the constitutions of 
all nations, in language similar to George Mason's Virginia Declaration of 
Rights.  The 1776 Virginia Declaration of Rights stated that one of the most 
important duties of government to the people is to secure for everyone "the 
means of acquiring and possessing property."  America's founders knew that 
economic democracy was impossible without broad-based individual ownership of 
productive assets and that putting economic power through property in the 
hands of all voters was the ultimate check on the potential abuse of the 
inherently coercive powers of any government, even political democracies.

While the goal is alluded to in Article 17 of the UN's Universal Declaration 
of Human Rights, no actions or programs of the UN yet promote individual or 
joint access to property in any systematic way.  COG's initiatives have the 
potential of correcting 
this fatal omission throughout the world.

Second, I believe that my greatest value to this network is to make 
contributions from the perspective of a “Kelsonian purist.”  (Because of 
their deep understanding of and solid commitment to the principles of the 
Kelsonian system, the same label can be applied to Patricia Kelso, Robert 
Ashford, Rodney Shakespeare, Norman Bailey, Joe Recinos, Mike Greaney, Dawn 
Brohawn, Antonio Betancourt, Ron Ludwig, Bob Smiley and a few others.)

To the extent participants in COG's “multilog” stray outside the “Kelso box,” 
my reactions and comments should be understood as advocacy of a specific 
paradigm that synthesizes the "win-win" thinking of revolutionary thinkers 
like social architect Louis Kelso and physical architect Buckminster Fuller.  
This "post-scarcity" paradigm offers a unified, comprehensive, highly 
principled, synergistic and realistic theory of development, economic justice 
and people empowerment.

Everyone, especially the poor, most workers and others excluded from power in 
the past, can gain much within this paradigm, and no one has anything to lose 
(except any continued monopoly of access to and control over the forces and 
tools of economic change.

e).  From a Kelsonian perspective, those who operate outside this box, 
perhaps unwittingly, at best promote change without real justice for the poor.

Both Kelso and Fuller accept human nature as a given, and both aim at 
changing the "winner-take-all" environment now surrounding human beings.  
Both strive to encourage the creative and life-enhancing side of human nature 
and to suppress tendencies that destroy life or seek domination over the 
lives of others.  And they both reject the Malthusian assumption that 
economic scarcity is inevitable and beyond overcoming with human creativity. 
They both believe that economic abundance is technologically possible.

The new post-scarcity paradigm from which I operate reflects Kelso’s theory 
of economic justice.  This theory offers a comprehensive systems logic based 
on clear principles for redesigning the "invisible" or institutional 
environment that impacts the behavior and quality of life of all members of 
society.  Kelso's system of binary economics, if followed, links people as 
owners to the process and benefits of technological change through 
inclusionary “social tools” (i.e., universal access to the secret ballot, the 
rule of law, democratic money and credit systems, simple and just tax 
systems, ownership-promoting labor unions and enterprises).  This paradigm 
also reflects Fuller’s "world design science" principles for redesigning the 
physical environment within which humans live (i.e., improvements in 
technology and physical structures) in order to help all individuals and 
families become more productive, more economically empowered and better able 
to control their own lives.

Third, every one of my comments will be based on my admittedly rigid 
adherence to Kelso’s three principles of economic justice and CESJ’s four 
pillars for achieving a just, prosperous and universally empowering economy.  
(To paraphrase Russell Long when he became a champion of Kelso's ideas, I 
take this position because I think Kelso is right.)  But because of my 
highest commitment to the pursuit of the truth and the marketplace of ideas, 
I accept any challenge and am willing to be proven wrong.

Within this framework, several of the COG proposals would be characterized as 
economically unjust (in principle) or unnecessarily conflictive, 
self-contradictory or tokenistic.  However, it is my sincere hope that my 
criticisms will not be taken as an attack on the person(s) advocating these 
proposals.  Since I'm personally convinced that Kelso’s principles are 
correct, my criticisms are aimed at wrong or confused ideas, not the 
messenger.  My aim is to persuade, not to offend, the advocates of ideas 
outside the Kelso paradigm, even  those whose goals are the same as Kelso's 
but whose means are anti-Kelsonian.

Fourth, to change basic economic policies to expanded capital ownership as a 
fundamental pillar of local, national and global policy, the ownership 
movement needs unity not just for its own sake (a mob is unified).  And it is 
not enough to agree merely on the ultimate goal.  We need to build unity on 
the basis of a mutually agreed-upon long-term vision, core values, 
operational principles and strategic plan to achieve that goal.  Without 
unity based on a transcending “radical middle road” position, COG will never 
unite conservatives and liberals, libertarians and progressives, people from 
across the ideological and generational spectrum, leaders and workers alike.  
A unity based on common vision and common principles is the only basis for 
building real solidarity inspired by “idea power” and effective “people 
power.”  In this light, the new paradigm of Kelso and Fuller and CESJ’s 
Capital Homestead proposals (can be found at our web site at 
http://www.cesj.org) deserve to be debated seriously by the COG network, 
before less principled expedients debase the noble goal that all of us agree 
should be advanced.     



My Framework of Analysis (“Where I’m Coming From”)

Kelso’s Three Principles of Economic Justice

Kelso’s principles of economic justice, based on classical concepts developed 
over the last several thousand years, are like a three-legged stool—all 
essential, universal and interdependent for promoting a just economy:

(1) the principle of participation, the “input” principle which ensures 
equality of access to the social means (e.g., money and credit) for the poor 
and working people generally to become owners of land and wealth-producing 
technologies, as well as equal opportunity to engage in productive work (this 
is the moral omission in alternative theories of economic justice);

(2) the principle of distribution, the “out-take” principle which links all 
owners globally, through their property rights and the immutable laws of 
supply and demand, directly and systematically to incomes from their capital 
inputs as well as their labor inputs (thus reducing the need for charity or 
redistribution through the state);

(3) the “feedback” principle (what CESJ calls the “principle of harmony” and 
Kelso called the anti-monopoly principle or “principle of limitation”).  
Whenever either the principle of participation or the principle of 
distribution is violated in the social order—as measured by a growing gap of 
power, status and opportunity between those at the top and those at the 
bottom of the economic ladder—this principle compels everyone to organize 
together (as COG is attempting to do) to restructure the economic order and 
restore equilibrium between participative (input) justice and distributive 
(out-take) justice.  (Incidentally, this social duty is what CESJ means by 
“acts of social justice”; it also systematically restores balance between 
mass consumption power and mass productive power as dictated by the laws of 
supply and demand.)

Kelso’s Four Pillars of a Just Economy

Following these common-sense principles and system of economic justice are 
the four fundamental pillars of policy for building a “just market economy”: 

(1) expanded capital ownership through the democratization of capital credit; 

(2) limiting the economic power of the state; 

(3) restoring the free and open market place for determining the just price, 
the just wage and the just profit; and 

(4) restoring private property in the means of production, particularly 
within global high-technology corporations.

Kelso would agree with Karl Marx that where the ownership of capital is 
concentrated, a free market economy contains the seeds of its own destruction 
if working people have only their labor to sell and are thus forced into 
competition with labor-displacing technology or workers willing to take less 
pay for the work.  (For example, through the global economy and the Internet, 
it is today possible for companies like the $500 billion Microsoft to hire a 
dozen Ph.D. information systems designers in India for the cost of hiring a 
single American worker for the same job.)  As the number of unemployed and 
underemployed people grows, political pressures mount for increased 
government intervention in the form of redistributive, anti-free market, and 
anti-property policies and laws.

However, as Milton Friedman asserts derisively, Louis Kelso would “turn Karl 
Marx upside down.” Friedman is right in suggesting that Kelso agrees with 
Marx’s diagnosis of the Wall Street model of capitalism.  However, Friedman 
is wrong in not acknowledging that Kelso would oppose Marx on Marx's 
rejection of free markets, private property, and the limited economic power 
of the state.  In other words, free markets and capitalism are not 
necessarily synonomous.  Marx's rejection of these fundamental three pillars 
of a free and just market economy has led inevitably to even more corruption 
and elitist domination over people's lives than under capitalism, for no 
other reason that it leads to the deification of the state and perpetuates 
the economic dependency of the people on those who rule the state.

But, unlike Milton Friedman and others who worship free markets while 
ignoring monopolistic accumulations of capital, Kelso also recognizes that 
restricting the economic power of the state and restoring private property 
and free markets is politically impossible without democratizing access to 
capital credit and economic institutions generally to achieve broad-based 
capital ownership as a fundamental fourth pillar of a just economy.  Kelso’s 
new paradigm explains why the pillar of expanded capital ownership is so 
essential for overcoming the inevitable injustices and power concentrations 
found both within the Wall Street capitalist model and the many variations of 
socialism, including the Welfare State.

Two Analytical Labels to Describe my Support or Opposition  to Specific 
Proposals

I presume that most people in the COG network are familiar with and support 
Bucky Fuller’s understanding of the history and potential of technological 
change.  Hence, I will concentrate my comments on Louis Kelso’s contributions 
to the new post-scarcity paradigm.  I will describe the “Kelso box” as “DEPP” 
(which stands for “Democratized Economic Power to the People”) and everything 
outside that box as the “CEPS” (which stands for “Concentrated Elitist Power 
through the State”).

Undoubtedly some people will reject my characterization if I maintain that 
their proposals fall within the CEPS box.  I would urge that before they 
react negatively they first seriously study the basic writings by Kelso, 
Robert Ashford and Rodney Shakespeare, and the Center for Economic and Social 
Justice, to understand why their proposals are characterized this way.  In 
fairness to Kelso, everyone within the COG network, particularly academics, 
should do their homework before tackling the radical set of ideas and 
proposals that the Great Books philosopher Mortimer J. Adler called "the most 
revolutionary idea of the century."

Critical Readings for People Trying to Understand the Kelso Paradigm

For discussions on Kelso’s economic paradigm, see Binary Economics: The New 
Paradigm, University Press of America, 1999; Curing World Poverty: The New 
Role of Property, Social Justice Review and CESJ, 1994; Democracy and 
Economic Power: Extending the ESOP Revolution, University Press of America, 
1986; and The Capital Homestead Act: National Infrastructural Reforms to Make 
Every Citizen a Shareholder, CESJ, 1999 update of 1982 paper.  For an 
understanding of Fuller’s contributions, see Utopia or Oblivion: The 
Prospects for Humanity, Bantam Books, 1969.  The Center for Economic and 
Social Justice maintains a web site at http://www.cesj.org for those seeking 
further materials and background on the Kelso paradigm and a summary and full 
text of the Capital Homestead Act, as well as my article, “Beyond ESOP: Steps 
Toward Tax Justice” (The Tax Executive, April, July 1977),on the rationale 
for a radically simplified tax system based on Kelsonian principles of 
economic justice.

SPECIFIC COMMENTS:

1.  Call for demonstrations against the World Trade Organization meetings in 
Seattle in November.  My Reaction:  CEPS (“Concentrated Elitist Power Through 
the State”).  Protesting against the lowering of trade barriers is a 
negative, defensive, reactionary and ultimately futile mercantilist response 
against the potentially positive potential of the economic globalization 
process.  If the demonstrations were to succeed, and I don’t think they will, 
it would come at the expense of  the American consumer and workers in 
exporting industries, as well as workers in other countries.  A more 
constructive response by COG is to insist on WTO policies that ensure a level 
playing field for workers globally, based on the four pillars of a just 
market economy described above.  Rather than trying to protect jobs in 
America, COG should be offering WTO a comprehensive and unified global agenda 
along lines of our Capital Homestead Act, aiming at equalizing ownership and 
profit sharing opportunities for all workers and families in America as well 
as in our trading partners.  Changing the rules of the Fed, the IMF and all 
central banks of WTO countries on how money and credit are created and 
irrigated into the productive sector would offer a far more powerful and more 
logically compelling alternative to the WTO than trying to repeal the laws of 
supply and demand, as the adversaries of the WTO would be attempting.  It 
would avoid violating WTO prohibitions against trade preferences, industry 
protections and subsidies.  COG should be in favor of faster rates of 
investment in high-tech capital (which will draw more underproductive and 
globally vulnerable workers into a more productive private sector), financed 
through more participatory ownership techniques, thus enabling America to 
produce more at lower costs but with a new, more empowering social contract 
for working Americans.  To gain a broad bipartisan base of support for COG’s 
goal of democrating capital ownership and access to capital credit, COG 
should advance the honey, rather than the vinegar (coercive) approach to 
policy reform.  Neither the American worker nor the Bangladesh textile worker 
needs a program that increases power of any power elite; they deserve genuine 
economic justice and genuine economic empowerment and I fail to see how COG 
would achieve these goals by taking any stand against a freer, more just and 
borderless global economy.  

2.  Ownership as a Quid Pro Quo for Government Largesse. My Response: DEPP 
(“Democratizing Economic Power to the People”).  I would agree that whenever 
government gives a subsidy to business, it should do so in ways that promote 
economic justice for all (i.e., broader participation in ownership, 
governance and profit sharing for workers and citizens generally).  For 
example, when I lobbied in 1972 for the NMU to save the American passenger 
vessels, or in 1973 to turn the Conrail system into a 100% employee-owned 
rail system, or in 1979-80 to try to get 72% (rather than the token stake of 
13% agreed to by the UAW) of Chrysler stock for workers by running the 
government loan guarantee through a leveraged ESOP, I followed this 
expedient.  However, from a Kelsonian standpoint, I would view this only as 
an expedient pointing to a new direction, not a position based on sound 
principle or logic.  

The government would do much more for the workers by revising Chapter 11 of 
the Bankruptcy Code to promote reorganizations of failing companies through 
“Value-Based Management” (see www.cesj.org) and ESOP debt-to-equity 
refinancings, backed up by bank loans discountable at the regional Fed for 
modernization and reorganization funding.  By leveling the playing field 
under the Capital Homestead Act, which involves no taxpayer subsidies at all 
(only structural reforms), the need for government subsidies would be 
radically reduced.  

Instead of trying to use the tax system to subsidize worker ownership, COG 
should promote a fairer, more simple and more neutral tax system that 
encourages (1) tax-deferred accumulations of capital for all citizens, (2) 
that avoids any tax on incomes below the poverty line, (3) that encourages 
full payout of dividends (thus providing worker-owners with second incomes to 
increase takehome incomes while inducing companies to finance their growth 
through Capital Homesteading loans discountable with the Fed, (4) that funds 
Social Security and Medicare payouts from general revenues, (5) that 
encourages the spreading of ownership of large estates after the owner dies 
widely among many, especially working people, (6) that imposes a fair tax on 
all incomes, including capital gains (after inflation indexing), dividends, 
interest and other capital incomes and (7) that integrates corporate and 
individual taxes by making dividends deductible at the corporate level.

3.  Re-Activating the Federal Reserve Discount Window for Bank Loans to 
Capital Homesteading Vehicles Like ESOPs, CSOPs and Community Investment 
Corporations at a Service Charge of 0.5%.  

My Response: DEPP.  If COG does nothing else, this objective will democratize 
the American economy and, by example, point the way toward a more just, 
freer, and more productive global economy for workers everywhere, especially 
in the poorest and most exploited regions of the world. 

However, I would not impose quotas or requirements for a specified percentage 
on banks, other than having the Fed monitor banks to ensure that local bank 
loans are made for economically feasible (i.e., self-liquidating) projects.  
Banks will make lots of money under our proposal, because they will charge 
the same competitive mark-up over their cost of money as with conventional 
direct loans to corporations.  The best safeguard against abuse is to require 
that only “qualified” Capital Homesteading loans under Section 13 of the 
Federal Reserve Act be eligible for Fed discounting and that no access to the 
discount window would be permitted for conventional corporate loans (which 
benefit current owners), for speculation in stock or commodities, for 
non-productive purposes like consumer loans, or for bailouts of failing banks 
and other countries.  

The differential in the cost of money to the banks, which would in any case 
be passed on to the borrowers, will be more than sufficient to induce 
significant movement toward leveraged ESOPs, CSOPs and CICs.  The 0.5% 
Capital Homesteading “service charge to banks from the Fed would not involve 
any taxpayer subsidy but rather would simply cover the cost of providing a 
uniquely “public good” (i.e., asset-backed new money) on an equitable basis 
to Americans who in the past have been systematically excluded from equal 
access to capital credit (a gross violation of equal protection under the 
U.S. Constitution).  Thus, no one can attack this proposal on the basis of 
unfairness or preferential treatment or in any way violating voluntary 
participation in the competitive market system on a truly equal basis.  All 
Americans would be eligible to benefit on an equitable basis.  The already 
rich would still have access to already accumulated savings from domestic and 
foreign sources (“other people’s money”), but albeit at a much higher base 
rate.  And neither the Fed nor Wall Street could argue that the two-tier base 
of interest is inflationary, since, under our proposed 100% reserve 
requirement, all new money would be asset-backed, structured to produce 
higher rates of private sector production and designed to reduce the need for 
inflationary and non-productive job and income redistribution expedients.  

For more details on this proposal, visit the CESJ web site at 
http://www.cesj.org.

5.  Capital Credit Insurance and Reinsurance as a Substitute for Lack of 
Collateral.

DEPP.  Normally workers and the poor cannot qualify for capital credit, 
because the have no assets to forfeit in the event the capital loan cannot be 
repaid.  This collateralization barrier can be overcome by encouraging the 
private sector and the governments at all levels to establish commercial 
insurance for lenders to Capital Homesteading vehicles like ESOPs, CSOPs and 
CICs.  

After World War II a similar program was set up in the form of mortgage 
insurance so that returning veterans, who had no assets, could borrow money 
to buy new homes.  It worked.  The same can be done, supported by a Capital 
Credit Reinsurance facility, to expand the capital base of America so that 
all workers and families can acquire on credit a growing portfolio of full 
dividend payout stock.  Except for a small reserve fund to kick-start the 
capital reinsurance facility (which would be a good place for justice-loving 
rich people, foundations, pension funds and government to put their money), 
the effort would be self-financed out of the risk premiums that lenders add 
to the interest charged to borrowers, which normally would be paid out of 
profits.  Properly designed the program would not require the government to 
be the insurer of last resort, as in the savings and loan fiasco.

6.  More Later.   

In the meantime, now that I’ve thrown my bit of intellectual plastique into 
the middle of the COG network, I’ll be waiting eagerly for some feedback. 

 Incidentally, David Spitzley’s account of my “debate” with Corey Rosen 
(which COG has available to you in its library) cut out much of the meat.  
For those interested in the full debate, I’d be happy to send it to you.  

Again, I hope that COG will encourage a full debate on the Kelso approach to 
economic justice and democracy.  Otherwise, the movement will have only 
marginal impact on the growing and dangerously wide gap of capital ownership 
and economic power between a tiny wealthy elite and the six billion mostly 
non-wealthy people around the world who have been excluded systematically 
from their fair share of the action.