MONETARY: Kelso & Douglas, how different are they?, Part I

[Norman Kurland <thirdway@cesj.org>]

Bill Ryan and others in COG,

[Readers may be somewhat confused by responses of Bill Ryan and Michael
Bindner under the subject of “Kelso & Douglas, how different are they?”
My posting under that label was submitted originally to COG for the
Economics of Ownership Discussion Group and the Monetary Reform
Discussion Group on December 13 and December 14, 2001 and was sent out
to Bill, Michael and others separately.  Both of my submissions were
“bounced” by the COG system for various reasons that have now been
corrected . . . I hope.  This version has been slightly revised from the
earlier versions, but in no way that would change the responses of Bill
and Mike, which I will respond to separately.  To help you follow the
sequence of postings, here is my original response to Bill’s earlier
posting based on an e-mail to me from Michael Lane of November 12. Read
the following as if it was posted prior to Bill Ryan’s and Michael
Bindner’s postings of December 17.]

This is part I of two parts in my initial response to your points
comparing the
binary economics of Louis Kelso with the social credit economics of
Major
Douglas, two intellectual giants.

As Michael Lane has pointed out in his letter to me of November 12,
2001,
there are many important common themes in Louis Kelso's binary economics

and Major Douglas' social credit economics.  While their precise
language and
their means for achieving their goals might differ, Douglas and Kelso
would
probably both agree with changes in national economic policy that would:

1) recognize the increased productiveness of the instruments of
technology as a
basis for national income maintenance policies,
2) discourage redistributive taxation and any form of concentrated
power,
3) support the monetization of private sector economic growth,
4) provide access to credit as a fundamental right of citizens,
5) favor full production over full employment policies,
6) favor market-based determinations of wages and prices,
7) protect private property rights,
8) stress the importance of leisure and
9) focus on overcoming artificial scarcity (poverty) and planning for
shared
abundance.

Reasonable people can engage in fruitful debates over differences
between Kelso
and Douglas in their respective systems logic and means of implementing
their
shared objectives.  Such positive interactions might possibly lead to a
combining of their "people power" networks to challenge the defenders of
the hopelessly flawed economic policies coming from the left, the right
and the muddled middle of Washington thinktanks and academia generally.
Given the many strengths that would result from an alliance between
binary economists and social creditors, I hope that my responses below
will lead to a mutually respectful and continuing dialogue with you, Vic
Bridger and others, initially separate from mine with Michael Lane.

Below I will intersperse my responses to your reactions to some quoted
excerpts
of mine in a recent exchange with Michael Lane, who, like yourself, is
committed to the teachings of Major Douglas.  Many of my responses flow
from
my paper, "A New Look at Prices and Money: The Kelsonian Binary Model
for
Achieving Rapid Growth Without Inflation," which is confirmed for
publication
in The Journal of Socio-Economics and can be downloaded by clicking on

http://www.cesj.org/binaryeconomics/price-money.html

But I want to acknowledge that most of the responses below were
initially
prepared, before my inputs and editing touches, by my colleague, Michael
D.
Greaney, a CPA and MBA who serves as volunteer director of research for
our
Center for Economic and Social Justice.  However, I accept total
responsibility for this e-mail posting and any changes from Michael's
draft.

In an earlier message to COG's Economics of Ownership Discussion Group
"William B. Ryan" wrote:

  <<Norman,>>

  <<In response to your dialog with Michael [Lane].>>

  <<1.  First, a note to Michael [Lane]:>>

  <<"Labor displacements" was the subject heading of a message
  from someone else that I replied to.  It is not mine.  My
  preferred term is "labor displacement" as a general concept.
  Douglas' term was "labour replacement."  The following is
  excerpted from The Monopoly of Credit: >>

  <<"The factor which is probably at the root of the problem...has
  during the past few years been a matter of acrimonious
  controversy.  On its physical or realistic side, it is intimately
  connected with the replacement of human labour by machine
  labour.">>

Why is this point significant?  As far as I can see, there is no
relevant difference for purpose of our exchange between "labor
replacement" and "labor displacement."  "Productive capital," "tools of
production," "procreative capital," or what Backminster Fuller called
"energy slaves" would have also been appropriate for describing the
substitution of human work with productive technology.  I'm not sure
Douglas would have made an issue of the language in this instance.

  <<2.  You make a number of gross misstatements of fact which
  no doubt derive from an unfamiliarity with the subject.>>

  <<Kurland: "...there would be no point in placing limits on profits
  as Douglas proposed.">>

  <<Douglas never proposed that there should be limits on profits.
  The Dividend itself, a broadly encompassing concept, is to be
  funded with new credit and not diverted or confiscated profits
  or taxation.>>

This whole argument is a non sequitur, that is, it does not follow from
the point being made, which is that Norm Kurland made "gross
misstatements of fact" stemming from his "unfamiliarity with the
subject."

The quote is irrelevant.  Major Douglas specifically stated that capital
(the
non-human factors of production, in which Kelso includes natural
resources and
technology, the "means of exploiting" natural resources) should be owned
in
common, i.e., by the collective.  The entrepreneur (the "improver of
process")
was only due a certain pro rata return.  Everything above that level
constituted
the "national dividend" and was owned by everybody equally:

To quote from Douglas himself: "(1) Natural resources are common
property,
and the means for their exploitation should also be common property. . .
. (3)
The payment to be made to the improver of process, including direction,
is to be
based on the rate of decrease of human time-energy units resulting from
the
improvement, and is to take the form of an extension of facilities for
further
improvement in the same or other processes." (Douglas, "Economic
Democracy" pp. 110 -111.)

This is an explicit limitation on the return to the owner of capital.
Douglas
limited profit-taking to what would recompense the entrepreneur for his
time and
effort, measured in their value in "time-energy units," along with
whatever was
needed to form new capital.  This is a variation on Ricardo's "labor
theory of
value," which Marx congealed into a dogma.  A mere shareholder who did
not
contribute labor or "human time-energy units" to the productive process
would
receive only enough to replace his original investment.  This is also,
by the way, identical to Marx's proposal that the capitalist was due
back only the original cost of the capital.  Douglas thus treated any
residual (which Marx called "stolen labor" and others call "surplus
profits) would belong to the collective as the "National Dividend."

  The National Dividend would be monetized and distributed by having the

government issue non-repayable credits in equal amounts to every
citizen.
Douglas declared that the money supply available for consumption
purposes
could only consist of loaned money that had not yet been paid back to
the banks
from which it had issued:

Douglas argued: "The impossibility of a balanced budget within a closed
system
of credit must be from the foregoing sufficiently obvious.  Without
going into
details which still further complicate the situation, such a proposition
means that the only surplus purchasing power at the disposal of the
individuals comprising the nation would be the excess of bank loans over
bank repayments, i.e. debt."(Douglas, "The Monopoly of Credit" p. 58).

The only solution to Douglas' perceived lack of purchasing power would
be to
make loans (social credit) to the citizens that did not have to be
repaid.  These would be considered increments of the National Dividend,
payable as dividends on shares held individually, representing a portion
of the National Debt.  As the National Dividend belongs to everyone, the
people would, in essence, be loaning money to themselves.  It would thus
be foolish to repay the loans as you would only be paying them back to
yourself.  The loans, necessarily in the form of new money, would be
spent to clear consumption goods and services at market prices, not to
perform the self-defeating act of repaying the social credit loans:

Again from Douglas: "The provision of a National Dividend is merely to
place in
the hands of each one of the population, in the form of dividend-paying
shares, a share of what is now known as the National Debt, without,
however, confiscating that which is already in private hands, since the
National Credit, is, in fact immensely greater than that portion of the
National Debt which now provides incomes to individuals.

"The practical effect of a National Dividend would be, firstly, to
provide a
secure source of income to individuals which, though it might be
desirable to
augment it by work, when obtainable, would, nevertheless, provide all
the
necessary purchasing power to maintain self-respect and health.  By
providing a
steady demand upon our producing system, it would go a long way towards
stabilizing business conditions, and would assure producers of a
constant home
market for their goods."  (Douglas, "The Monopoly of Credit" p. 102).

If declaring that only a specific return on capital is legitimate and
everything else belongs to the collective is NOT a limitation on
profits, then nothing can be construed as a limitation on profits.  It
follows then that there can be no
argument, because there is no agreement on the meaning of the concept
"limitation" or "profit."  The issue here, as in the comment above, is
purely
semantic.

  <<This does not necessarily require action by the government.
  In principle, it could be accomplished by the banking system
  on its own initiative through its own facilities.  Nor does it
  necessarily require "money."  It could be accomplished by the
  mechanism of a generalized accounting adjustment in
  augmentation to effective demand.>>

Similarly, Bill, let's examine these statements of yours: "Nor does it
[the
National Dividend] necessarily require 'money.'  It could be
accomplished by
the mechanism of a generalized accounting adjustment in augmentation to
effective demand" is an exercise in semantics.  While I consider
Douglas'
definition of money somewhat limited, his definition was explicit enough
to
include as "money" any such "mechanism of a generalized accounting
adjustment in augmentation to effective demand."

If you are arguing that "augmentation to effective demand" in any form
does
NOT constitute "money" as understood by Douglas, doesn't that make your
definition of "money" more narrow than that of Douglas.  Am I wrong?

 According to Douglas: "Money is essentially an order system.  It has
been
defined by Professor Walker as 'any medium no matter of what it is made
or
why people want it, no one will refuse in exchange for his goods.'  That
is to
say, a given denomination of money may at any time be exchanged for any
article bearing a price figure corresponding to this denomination of
money, and it is a simple extension of this proposition to say that the
power of creating money is a guarantee of the power of acquiring goods
or services to a total proportion of the whole stock of goods and
services equal to the percentage of existing money which can be
created."  (Douglas, "The Monopoly of Credit" pp. 17-18.)

  <<The Social Credit Movement, from its inception to its wane,
  was always staunchly pro-individual enterprise and against
  centralized power in any form.  This extensive excerpt is from
  Economic Democracy, published as a book in 1919 after an
  earlier serialization in Orage's journal, at the very beginning of
  Douglas' public career:>>

  <<"We are thus led to inquire into environment with a view to
  the identification, if possible, of conditions to which can be
  charged the development of servility on the one hand, and the
  discouragement of possibly more desirable characteristics on
  the other, and in this inquiry it is necessary to avoid the real
  danger of mistaking effects for causes; and, further, to beware
  of seeing only one phenomenon when we are really confronted
  with several. >>

  <<"For instance, that from the misuse of the power of capital
  many of the more glaring defects of society proceed is certain,
  but in claiming that in itself the private administration of
  industry is the whole source of these evils, the Socialist is
  almost certainly claiming too much, confounding the symptom
  with the disease, and taking no account of certain essential
  facts.  It is most important to differentiate in this matter,
  between private enterprise utilizing capital, and the abuse of
  it.>>

  <<"The private administration of capital has had a credit as well
  as a debit side to its account; without private enterprise
  backed by capital, scientific progress, and the possibilities of
  material betterment based on it, would never have achieved
  the rapid development of the past hundred years; and still
  more important at this time, only the control of capital, which
  on the one hand has degraded propaganda into one of the
  Black Arts, has, on the other, made possible such crusades
  against an ill-informed or misled public opinion as, for
  instance, the anti-slavery campaign of the early nineteenth
  century, or the parallel activities of the anti-sweating league
  at the present day.  The very agitation carried on against
  capitalism itself would be impossible without the freedom of
  action given by the private control of considerable funds.>>

  <<"The capitalistic system in the form in which we know it has
  served its purpose, and may be replaced with advantage; but
  in any social system proposed, the first necessity is to provide
  some bulwark against a despotism which might exceed that of
  the Trust, bad as the latter has become.  In our anxiety to
  make a world safe for democracy it is a real urgency that we
  do not tip out the baby with the bath water, and, by discarding
  too soon what is clearly an agency which can be made to
  operate both ways, make democracy even more unsafe for
  the individual that it is at present.>>

  <<"The danger which at the moment threatens individual liberty
  far more than any extension of individual enterprise is the
  Servile State; the erection of an irresistible and impersonal
  organization through which the ambition of able men,
  animated consciously or unconsciously by the lust of
  domination, may operate to the enslavement of their fellows.
  Under such a system the ordinary citizen might, and probably
  would, be far worse off than under private enterprise freed
  from the domination of finance and regulated in the light of
  modern thought...>>

  <<"In attacking capitalism, collective Socialism has largely failed
  to recognize that the real enemy is the will-to-power, the
  positive complement to servility, of which Prussianism, with its
  theories of the supreme state and the unimportance of the
  individual (both of which are the absolute negation of private
  enterprise), is only the fine flower; and that nationalization of
  all the means of livelihood, without the provision of much
  more effective safeguards than have so far been publicly
  evolved, leaves the individual without any appeal from its only
  possible employer and substitutes a worse, because more
  powerful, tyranny for that which it would destroy.>>

  <<"...It is notorious that the State Socialists of Germany,
  commonly known as the Majority Party, were of the greatest
  possible assistance to Junkerdom in carrying out its plans for a
  Prussian world hegemony; while in England the bureaucrat
  and the Fabian have, on the whole, not failed to understand
  each other; and the explanation is simply that both, either
  consciously or unconsciously, assume that there is no
  psychological problem involved in the control of industry just
  as the Syndicalist is, with more justification, apt to stress the
  psychological to the exclusion of the technical aspect.>>

  <<"Because the control of capital has given power, the effect of
  the operation of the will-to-power has been to accumulate
  capital in a few groups, possibly composed of large numbers of
  shareholders, but frequently directed by one man; and this
  process is quite clearly a stage in the transition from
  decentralized to centralized power.  This centralization of the
  power of capital and credit is going on before our eyes, both
  directly in the form of money trusts and bank amalgamations,
  and indirectly in the confederation of the producing industries
  representing the capital power of machinery.  It has its
  counterpart in every sphere of activity: the coalescing of small
  businesses into larger, of shops into huge stores, of villages
  into towns, of nations into leagues, and in very case is
  commended to the reason by the plea of economic necessity
  and efficiency.  But behind this lies always the will-to-power,
  which operates equally through politics, finance or industry,
  and always towards centralization.>>

  <<"If this point of view be admitted, it seems perfectly clear that
  to the individual it will make very little difference what name
  is given to centralization.  Nationalization without
  decentralized control of policy will quite effectively install the
  trust magnate of the next generation in the chair of the
  bureaucrat, with the added advantage to him, that he will
  have no shareholders' meeting.">>

The real issue, however, is not whether Douglas stated he supported
private property.  By his own words, as you quoted him above, that is a
given.  This is a declaration he made many times and which, apparently,
he believed.  The real issue is whether Douglas' understanding of
property and the program he developed do, in fact, respect and protect
private property the way he claimed.  This, and I'm sure all binary
economists would agree, would not appear to be the case.

  The issue is also not whether Major Douglas opposed centralized power
in any
form.  He did, repeatedly.  The issue is whether his program's effect on

property rights would inevitably increase the centralized power of
government.
Here is how Douglas distinguished social credit from socialism:

"It seems difficult to make it clear that the proposal for a National
Dividend, which would enable the products of our industrial system to be
bought
by our own population, has nothing to do with Socialism, as that is
commonly
understood.  The main idea of Socialism appears to be the
nationalization of
productive undertakings and their administration by Government
departments.
Whatever merits such a proposal may have, or may not have, it does not
touch
the difficulty we have been considering."  (Douglas, "The Monopoly of
Credit"
p. 101.)

The passage quoted directly above is followed immediately by the
statement that "The provision of a National Dividend is merely to place
in the hands of each one of the population, in the form of
dividend-paying shares, a share of what is now known as the National
Debt" (see above).  Douglas also previously stated that common ownership
applied to both natural resources and the means of exploiting them.

It becomes impossible to reconcile the claim that social credit is NOT
socialism
given Karl Marx's definition of communism, the most extreme form of
socialism, in "The Communist Manifesto": "In this sense, the theory of
the Communists may be summed up in the single sentence:  Abolition of
private property."  This is made clearer when Marx elaborates on this
statement, declaring that personal property is not his object, but
property in the means of production - that which Douglas had declared
belonged to the collective.  Such a program (as well as Douglas' stated
aim in "Economic Democracy" of "changing human personality"[!] by
overcoming the "will-to-power") requires, as the communists discovered,
increasing government control and domination.  Instead of "withering
away," the state becomes ever stronger.

And contrast how Douglas would temper and restrain the "will-to-power"
with
that proposed by Kelso and other binary economists, who would reduce the

potential abuses of concentrated power by decentralizing economic power
through universal access to capital ownership.  (Social credit also
raises the
question as to the degree of oversight required by a central authority
to keep
entrepreneurs from ratcheting up their salaries to replace profits
diverted to the National Dividend, just as they do today to avoid the
double taxation on
corporate dividends.)

Before I studied the law, I must confess that I did not understand the
nature of
"property."  After meeting Kelso and reading his superb critique of Karl
Marx's
Das Kapital, I deepened my understanding of property and its political
significance for broadly diffusing economic power.

    (Click on  KARL MARX: The Almost Capitalist By Louis O. Kelso.  or
    http://www.cesj.org/thirdway/almostcapitalist.htm)

Despite his obvious brilliance, Major Douglas, like Marx and many
intellectuals,
failed to fully appreciate the nature and political significance of
property.  Stated simply, property is not a thing.  It is a set of
relationships.  It is the rights, powers and privileges that a person
has to and over a thing, in relation to everyone else in the world.
These rights include one that Douglas correctly considered
all-important.  That is the right of access to the means of acquiring
and possessing property.  Unfortunately, his concern for this universal
and absolute right "to" property appears to have caused him to overlook
the equally important rights "of" property.

Above all, the rights of property mean the right of full enjoyment of
"the fruit of ownership."  Primary among "the fruits of ownership" is
the full stream of
income generated by that which is owned.  If you own an apple tree, you
have
the right to do with as you please all the apples grown on that tree, as
long as
your "doing" respects the rights of others and the  common good.

It is important to note in this respect that "the common good" does not
include
title to the fruits of ownership that derive from private property, but
organized society may place limitations how those fruits are used.  That
is, care must be taken that others' rights are not violated, but their
rights do not give others the right to use the fruits of ownership that
belong to you, at least not without your consent.  Organized society can
prevent you from hurling green apples at the heads of passers-by, or to
punish you if you do such a thing.  But government does not have the
right to steal apples from trees belonging to private individuals that
adjoin a public thoroughfare.

Whether you own yourself, land, an apple tree or some other form of
capital, the rights of property demand that you receive the fruits
thereof, without infringement, or society is unjust to that extent.  You
own the wages generated by your labor, the crops from your land, the
apples from your tree, and the revenues-less-costs resulting from the
sale of products generated by your machinery - in their entirety.  The
functional definition of slavery, a perversion and dehumanization of
property rights, is that the fruits of one's labor belong to someone
else.  Consequently, with the abolition of slavery, no one else,
especially the state, has any legitimate claim on your property. (There
are certain exceptions, especially in cases of dire necessity, but these
are exceptions, not the rule, and we are here discussing a mandatory
rule, not allowed expedients.)

Some, such as Thomas Hobbes and Robert Filmer, have protested that
individuals only have private property against other private
individuals, not
against the state.  By Hobbesian logic, taxation is an exercise of
property in the goods of the subjects by the sovereign who is the
ultimate owner of everything.  Locke (and Sidney, Bellarmine, Aquinas,
et al.) disagreed with this assessment.  Where the people are sovereign,
taxes are a grant from the people to their duly appointed rulers for the
purpose of meeting the expenses of government, and cannot be levied
legitimately without the consent (implicit or explicit) of the governed.

Back to Major Douglas.  His social credit program requires that some
central
authority determine the amount of production above what is "due" to
producers
for their legitimate efforts, "monetize" that amount as a payment on the

"National Dividend," and distribute it to every citizen in the form of
"new
credit." (Remember that in "The Monopoly of Credit" Douglas declared
money
and credit identical.)  This "National Dividend" would rapidly become
virtually
the sole source of income for the majority of people:

Douglas offered his vision: "That the distribution of cash credits to
individuals shall be progressively less dependent upon employment.  That
is to say, that the dividend shall progressively displace the wage and
salary, as productive capacity increases per man-hour."  (Douglas, "The
Monopoly of Credit" p. 151.)

While social credit proponents claim to be uncomfortable with
centralized
power, giving a central authority such power over individual incomes is
a recipe
for virtually unlimited power in the hands of whomever determines the
appropriate rate of return on invested capital, which in turn will
determine the
amount of the "National Dividend."  This is true whether the central
authority
decides to peg the rate of return to the cost of capital or some other
measure.
The fact remains that the decision is essentially arbitrary and, if
enforced even by the indirect means of the National Dividend,
tyrannical.  It forces a subjective
"what should be" on to an objective "what is," the "what
  is" already having been determined by the functioning of the market.

However a National Dividend is accomplished, whether direct or indirect
(i.e.,
through direct taxation of what some called "surplus profits" or
"unearned
profits" and subsequent redistribution, or through monetization and
issuance of
new currency or credit in ways that result in inflation, a form of
indirect
taxation), the effect is the same.  Debilitating inroads will have been
made on the institution of private property.  To claim that the amount
of the National
Dividend belongs to the collective is to destroy private property.

Douglas equated the "National Dividend" with what he called the
"cultural
heritage" and what Mortimer Adler called the "goods of civilization."  I
call them "social goods."  Kelso and Adler considered the "goods of
civilization" as equally accessible to every educated person and
available to be incorporated in all forms of productive capital.  Just
as the air we breathe or laws or ideas are not subject to the laws of
property, the same goes for the "cultural heritage."  (Money, credit and
the political ballot are also "social goods" that should be equally
accessible under the same conditions to all.  Like other parts of the
"cultural heritage," money as a medium of exchange, credit as a form of
promise, laws, and ideas are not subject to the laws of property, but
they are vital to enable individuals to acquire property rights and be
free of dependency on others.  I think that, on the subject of property
rights, Kelso and Adler were on sounder ground than Douglas.

Based on Douglas' erroneous view of property rights in the "cultural
heritage",
the social credit position argues that what was generated by my property
does
not belong to me, but to everyone to the degree that it exceeds what is
"due" me
under that particular arrangement of society.  While I may retain legal
title, I
retain rights to nothing above an amount of profits determined by the
central
authority, which by that act alone is exercising property in my capital
goods, and thus assumes effective (though not legal) title to my
assets.  As Henry George, another brilliant economic thinker, pointed
out in "Progress and Poverty," the state doesn't need to take legal
title to land and natural resources if it can take the income - the
outcome is exactly the same:

Henry George said something regarding the treatment of profits from land
use
that closely resembles Major Douglas' treatment of the "cultural
heritage."
George said, "I do not propose either to purchase or to confiscate
private
property in land.  The first would be unjust; the second, needless.  Let
the
individuals who now hold it still retain, if they want to, possession of
what they are pleased to call THEIR land.  Let them continue to call it
THEIR land.  Let them buy and sell, and bequeath and devise it.  We may
safely leave them the
shell, if we take the kernel.  IT IS NOT NECESSARY TO CONFISCATE LAND;
IT IS ONLY NECESSARY TO CONFISCATE RENT.... What I, therefore, propose,
as the simple yet sovereign remedy, which will raise wages, increase the
earnings of capital, extirpate pauperism, abolish poverty, give
remunerative employment to whoever wishes it, afford free scope to human
powers, lessen crime, elevate morals, and taste, and intelligence,
purify government and carry civilization to yet nobler heights, is – TO
APPROPRIATE RENT BY TAXATION."  Henry George went on to say, "In this
way the State may become the universal landlord without calling herself
so, and without assuming a single new function.  In form, the ownership
of land would remain just as now.  No owner of land need be
dispossessed, and no restriction need be placed upon the amount of land
any one could hold.  For,
rent being taken by the State in taxes, land, no matter in whose name it
stood, or in what parcels it was held, would be really common property,
and every
member of the community would participate in the advantages of its
ownership."
(Henry George, "Progress and Poverty" pp. 405 - 406.)

  (Norm Kurland responses to Bill Ryan continue in Part II .)