MONETARY: Binary Economics & Social Credit: Part II

[Norman Kurland <thirdway@cesj.org>]

BINARY ECONOMICS AND SOCIAL CREDIT: AN EXCHANGE WITH MICHAEL LANE, PART
II

NOTE: This is the first half of the point-and-response presentation
between Michael Stephen Lane, editor of the monthly publication, TRIUMPH
OF THE PAST, Columbus, Ohio, and Norm Kurland of the Center of Economic
and Social Justice.  Excerpts from Mr. Lane’s letter of November 12,
2001 (which was presented as received in Part I of this three-part
series) are enclosed by       <<        >>.  Mr. Kurland’s response of
December 2, 2001 follows each of the segmented points in the order
presented by Mr. Lane.  Mr. Lane has given permission to make this
exchange available to interested persons.  Of course, both writers will
have the opportunity to make further comments in the interest of
promoting a scholarly dialogue and deeper mutual understanding between
those advocating the binary economic theory of Louis Kelso and the
social credit theory of Major Douglas.

Dear Michael,

As I mentioned on the telephone, I very much appreciated your thoughtful
and friendly
comments on my paper, "A New Look at Prices and Money: The Kelsonian
Binary
Model for Achieving Rapid Growth Without Inflation."   (Click on
http://www.cesj.org/binaryeconomics/price-money.html)  Below is a copy
of your
original letter (marked by <<   >>).  I will intersperse my responses to
your remarks
with numbered paragraphs as appropriate.


<<November 12, 2001>>

<<Dear Mr. Kurland:>>

<<You will recall that pursuant to an e-mail exchange between yourself
and a
Mr. Bill Ryan, I sent you a four-part article, “The Social Credit of the

Left,” with a promise to have a look at your article referred to in the
exchange, “A New Look at Prices and Money.”  (Page numbers refer to this

article unless otherwise noted.)>>

<<The Kelsonian binary theory and social credit plainly embody the same
social philosophy, which I am in the habit of calling the distributist
philosophy.>>

(1)  This is a fair comment, since the distributism of Chesterton and
Belloc share the
same ideals as binary economic theory and social credit -- advancing a
market system
where consumption incomes match with productive output, maximum justice
with
minimum toil, etc.

<<New (“pure”) credit for new production (p. 4f., 10f.); the
capital homestead-or cultural heritage-account with the dividend
displacing
the wage as the main form of income (pp. 9, 18, 20, 22); the job paid
for out
of the job (pp. 5, 7 ); naturally falling prices (pp. 12, 20); the
fallacy of
full employment (pp. 16, 18, 22); and the significance of leisure-work
(Kurland et al., “The Third Way,” p. 23f.) are all key social credit
themes.>>

(2)  My deepest respect and admiration goes out to you for having read
carefully and
showing a respectful understanding of the essence of Kelso's writings.
You are truly an
open-minded thinker and perhaps the first social credit advocate who
recognizes the
basic common objectives of binary theory and social credit.  In any
dialogue it shows
respect for others by first acknowledging your fundamental agreements on
basic issues.
I appreciate your doing that.  So many others other advocates of a
particular worldview
treat those advocating another paradigm in an arrogant and comptemptuous
way, so that
there is little chance of reaching common understanding or working
together to create a
more just and peaceful world.

The only social credit feature on your list that I have difficulty
understanding is "the job
paid for out of the job".  Do you mean that costs of production on one
side of the
accounting system represent someone's income on the other side?  If so,
this is an
accurate restatement of double-entry bookkeepiing at the firm level and
I would agree
with it.  If not, please help me out.

<<The predominant role of capital in contradistinction to labor as a
factor
of production in the Power Age (the origin of the term binary, p. 3) is
the
basis of the Douglas analysis.  I would therefore only question the
accuracy
of calling it “new” (p. 4).  I presume that Kelso was not prideful about

being original and would have rejoiced to find a predecessor if he had
known
it.>>

(3)  As I mentioned to you, I know that Kelso was somewhat familiar with
Douglas'
writings, but I don't know how deeply or extensively he read Douglas.
(He had an
extensive footnote (fn. 27A on p. 190) in his 1967 book, "Two-Factor
Theory: The
Economics of Reality" on Major Douglas, so I have no idea how much of
his thinking
was influenced by Major Douglas' writings.  In any event, I really don't
care who's right
(i.e., who speaks the truth.)  I care what's right (i.e., that the truth
is spoken so that
others can act on it for the good of all.)  And it's good that both
Kelso and Douglas
were both realistic enough to recognize that capital is significantly
more productive than
labor in the input mix as civilization continues to move toward more and
more advanced
systems for producing the goods and services for human consumption.

(4)  World industry is producing more and more with less and less human
energy.  To
paraphrase Buckminster Fuller, we're continually replacing "human
slaves" and "wage
slaves" with "energy slaves", thus releasing the former human slaves to
fulfill their
untapped human potential through what Aristotle called "leisure work",
the unlimited
unpaid work of producing the goods of civilization (i.e., perfecting the
social order in
ways that advance the dignity and well-being of all and at the expense
of none.)
Unliberated "wage slaves", trained to perform economic work, not
educated to be
critical thinkers and culture creators, have neither the time nor the
energy nor the
independent sources of income to meet their subsistence needs, in order
to enjoy
wholesome family lives and work voluntarily for the common good.
Clearly, I'm sure
you would agree, today's social order is badly in need of fundamental
restructuring.

(5)  Most conventional economists fail to acknowlege these obvious
socio-economic
points when analyzing alternative modes of income distribution.  What
Kelso added was
a systematic way to directly link consumption incomes to productive
inputs based on (1)
traditional distributive rights inherent in the institution of private
property ("to each
according to the productiveness of his labor and/or the productiveness
of his capital");
(2) competitive (i.e., non-monopolistic) markets (i.e., a fair and level
playing field
accessible to all producers and consumers) for determining just prices,
just wages and
salaries, and just profits (i.e., the residual after subtracting from
total revenues all labor,
materials, and all other costs of production); and (3) limited and
clearly-defined
economic powers of the state (i.e., minimum state intervention and
regulation of the
economy, a termination of monopolies and special privileges that stifle
productive
competition, and a lifting of barriers to accelerated capital creation,
capital credit and
competitive opportunities.  In other words, if all existing financial,
credit, tax and other
legal barriers to equal ownership opportunity were removed, and the
ownership of all
newly added and transferred capital assets were allowed to be widely
diffused among
citizens through "pure credit" (i,e., the democratization of capital
credit) and a more
democratic inheritance system, then there would be no point in placing
limits on profits
as Douglas proposed.  If capital's productiveness increased, then the
"wages of capital"
or "profits" would correspondingly increase, first in the form of
dividends for repaying
"self-liquidating" stock acquisition credit and then as cash dividends
for raising
consumption incomes for those who today are wholly dependent on wages
and welfare
to meet their consumption needs.  To restrict, limit or eliminate
profits is to violate the
property right of old as well as new owners to the fruits produced by
their own personal
stake in productive capital.  Ideally, the only limits on profits should
be determined by the
productiveness of capital and the "vote" of economically sovereign and
informed
consumers on the relative values of competing goods and services
available through the
global marketplace.  And the only practical limit that would be imposed
on the natural
law property rights of a person whose productive capital allows him to
be income
self-sufficient, is a natural time limit, the duration of life of the
owner himself.

<<I believe I can very easily describe to you what social credit is in
terms of capital homesteading and your diagram on p. 8.  If you take
your
ESOPs, ISOPs, CICs, and CSOPs and merge them, to make every citizen an
equal,
inalienable shareholder in USA, Inc., you have the social credit
dividend.>>

(6)  USA, Inc.

Here you have raised a sticky political point, the proper relation of
the human person
and the state.

A similar proposal was made in a 1977 book by Stuart Speiser, "A Piece
of the Action."
Speiser was inspired by a "60 Minutes" show under that title, on Kelso
and our
legislative successes on Capitol Hill.  Speiser wrote a distorted
history of our movement,
reviled Kelso's theories as an impediment to the goal of universal
capital ownership
(cowtowing to the arrogant opposition of academic economists like Milton
Friedman and
Paul Samuelson) and offering his solution -- putting shares representing
all new capital
in a single mutual fund (a USOP or "Universal Share Ownership Plan") and
paying all
citizens a dividend from the USOP.  All voting power would be
centralized in the hands
of those who ran the fund.  Since the USOP would be designed to
distribute "dividends"
to all that would be directly linked to productive capital, what's wrong
with Speiser's
proposal?  Why did Kelso reject it and I considered it politically naive
and
short-sighted?  Simply because such an enormous concentration of
economic power,
even in private hands, would eventually become corrupted or result in
such controversial
policy decisions that the fund would become a highly visible and
vulnerable political
target and eventually be taken over or controlled by state.  In other
words, the wrong
approach, though presumably well-intended, would lead to a socialist or
communist
system, where economic power is even more concentrated in fewer hands
than under
the Wall Street version of capitalism.

Why do I think your idea of USA, Inc. would lead to a similar
conclusion?

 As I understand it, many proponents of social credit and other similar
mechanisms
assert that the government wouldn’t really be in control because a
special
non-governmental committee would be appointed to decide matters, such as
how much
money to print, etc.  The danger is not just in the government or
quasi-government
agency carrying out the process.  It is in the fact that power is so
concentrated.  Even if
it were a completely private initiative, the government would not be
able to restrain its
impulse (in the interests of national security, etc.) to regulate and,
finally, effectively
take over the concentration of wealth that a single entity or series of
linked entities
represents.

The state has many important social functions to perform (i.e., enabling
every human
person the enjoyment of such "inalienable rights" as "life, liberty,
with the means of
acquiring and possessing property."  Governmental sovereignty should be
subordinate,
not superior to, the sovereignty of each human person under the highest
sovereignty of
"our Creator," the source of our inalienable human rights, including
equal access to the
means of becoming an owner of property.  Since the state is a natural
and, in my
opinion, humanity's only legitimate permanent monopoly (the controller
over instruments
of coercion), the state is an inherently dangerous social tool.  Lord
Acton was right,
power does tend to corrupt and absolute power corrupts absolutely.

The ultimate check on the potential abuses and inherent corruptability
of concentrated
state power, even in a political democracy, is the broadest diffusion of
economic power.
And as Daniel Webster said, "power naturally and necessarily follows
property."
("Property", as you know, is not the thing that is owned, but it is the
relationship  -- i.e.,
the bundle of rights, powers, and privileges -- an owner enjoys with
respect to "things,"
limited only to the extent the exercise of those rights do not harm
others or the common
good.  One of the most important of those rights is the right of the
owner to the fruits or
"profits" from the thing he owns.  Otherwise, the biblical mandate,
"Thou shalt not steal,"
is meaningless.  Therefore, it follows, to minimize government
corruption, waste, abuse
of its coercive powers and threats to inalienable human rights, the laws
should be
restructured to favor the broadest distribution of private property
rights in the means of
production.  (Cf. Pope Leo XIII, Rerum Novarum, "On the Condition of
Workers,"
1891.)

If everyone's dividend (share of profits) is to be determined centrally
(directly or by
delegation) by the state, then the state necessarily becomes the
effective owner of the
means of production (i.e., profits always belong to the capital owner to
do with as he
pleases.)   If short-sighted social policy allows the state to receive
or control profits, that
policy results in the ultimate form of monopolized economic power  The
social and
political dangers in such an aggregate in economic power is very
effectively addressed
in Louis Kelso's critique of "Das Kapital", in his 1957 article, "Karl
Marx: The Almost
Capitalist."  (Please click on
http://www.cesj.org/thirdway/almostcapitalist.htm)
By combining a monopoly over the instruments of social coercion (e.g.,
the nightsticks,
jails, firing squads, Taliban police) with a monopoly over everyone's
stomachs, the social
order that emerges becomes inevitably totalitarian.

In other words, Michael, it makes more political sense for a social
order to be structured
for economic democracy (i.e., diffused economic power) by making every
citizen a
capital owner, than to leave everyone vulnerable to a system where the
monopoly over
all instruments of coercion is concentrated in the same hands as those
who have a
monopoly over everyone's subsistence.  Such a combination of power not
only tends to
corrupt.  It cannot fail to corrupt absolutely.  Besides, since the
state is not an efficient
producer of wealth, a system that does not limit the economic power of
the state
generally produces lower standards of living, greater waste of resources
and human
potential, and vastly less creative people.  The history of the Soviet
Union is a case
study in point.

(7)  One last point here, in the last year I have revised my proposed
economic
restructuring plan, so that capital credit would flow from the bottom-up
through a Capital
Homestead Account (an expanded use of the ISOP concept) for every
citizen, rather
than from the top-down through ESOPs, CSOPS, and CICs.  See "Saving
Social
Security" by clicking on
http://www.cesj.org/homestead/reforms/other/savingsocialsecurity-nk.html

<<Social crediters distinguish between “administrative” ownership and
“beneficiary” ownership:  we don’t all want to play the flute, we just
want
to enjoy the music.  The social credit dividend satisfies “consumer
sovereignty” (itself precisely the kind of “democratic accountability”
proper to the marketplace) without requiring that consumers also become
owners of means of production in the administrative sense (cf. “Third
Way,”
pp. 13, 18).  Just as we don’t need full employment, we don’t need full
“share-voting” either.>>

Administrative Ownership and Beneficial Ownership.

(8)  The issue of power and whether it is concentrated or broadly
diffused is central to
my thinking and explains why I became attracted to the Kelso binary
economic system.
Your point, I believe, is that he who pays the piper calls the tune.
But not when the
piper is the source of your money.

If you're saying that not everyone is a good manager but that everyone
can and should
be an owner, I agree with you.  Every owner benefits when the best
managers work for
them.

However, one of the pillars of an economically just society is to remove
the dichotomy
apparent in the separation of “administrative” and “beneficial”
ownership.  (This is
currently a flaw in the way the ESOP is set up.  For example, workers
under U.S. trust
law are only "beneficial" owners over their ESOP share accounts and only
in
democratically structured ESOP companies do workers enjoy the same
degree of
control over their ESOP shares as they would if the shares were put in
their hands.)  In
most modern corporations the “administrative” owners (managers and
trustees) tend to
take more and more of the control into their own hands to the point
where, for the
"greater good" as perceived by "administrators" who are accountable
mainly to
themselves, eventually the “beneficial” owners lose not only rights of
control and
accountability, but the benefits as well.  A good illustration is what
happened throughout
Europe during the Reformation and well into the 20th century.  Tenants
on Church lands
had what amounted to beneficial ownership of the land they cultivated.
They had low
rates on the lease, which could be passed on to their children, easy
terms and fixity of
tenure.

When, for example, Henry VIII confiscated the landed property of the
Church in
England, the tenants were either evicted or the rents were raised and
long-term leases
abolished for the lower classes.  The tenants, while they did not have
legal ownership,
had beneficial ownership, but beneficial ownership was eliminated at the
whim of the
government.  Similarly in France and Mexico in the 19th and 20th
centuries as well as
England in the 16th, the various old age “pensioners” who received
income from various
Church-sponsored charitable foundations lost their income and everything
else when the
state confiscated the Church property that generated the income that
supported the
charity.  The pensioners didn’t own the assets, therefore they had no
real rights in them
in a civil sense.

The whole point of the Capital Homestead Act is to restore the
connection between
beneficial ownership and administrative ownership, making the
administrator
accountable to the beneficiary.  The situation is so bad currently in
the United States
that “shareholders” in an ESOP do not have legal title to their shares.
They only have a
statutory right to their benefits, not a property right.  Worse, even
for “ordinary”
shareholders US courts have held since 1919 (Dodge vs. Ford Motor
Company) that
shareholders, presumably owners of the corporation, do not have any
inherent right to
the profits of the company which they presumably own and which is
operated allegedly
for their benefit.  They’re just not allowed to draw dividends except at
the discretion of
the board of directors.

(9)  Having the right to vote shares, just as in access to the political
ballot, does not
require the owner to be a manager or an entrepreneur or a rocket
scientist.  But it does
mean that the policy-maker, the manager, and all technicians are subject
to disclosure,
transparency and democratic accountability (through a broadly
representative board of
directors and derivative shareholder suits) to those who have something
to lose from
self-serving, arbitrary, corrupt or extremely bad judgments.  Where
those with the voting
power are satisfied, they will either vote to support those who control
an enterprise or
they will abstain from voting.  The worse thing is to set up a system
where those in
power are accountable only to themselves or those who they select.

(10)  My final argument against the rejection of full "share-voting" is
that the same logic
would justify denying the political ballot to all citizens and turning
all power over
government to some team of elite experts and hope for the best results.
Since I have
more faith in the common sense of ordinary people than in the wisdom of
any
non-accountable elite, I favor economic democracy as the essential
foundation for
effective political democracy, with each sphere structured with checks
and balances,
clearly delegated powers and subject to the broadest possible degree of
"internal
accountability" and transparency consistent with its functions.  (Also,
and I agree with
your point that, under market competition, enterprises are held
"externally accountable"
by their customers and by concerned and independent citizens acting
through the courts
and their elected public representatives.)