OWNERSHIP: The New Capitalists - Excerpts

[Richard Stutsman <rstutsman@worldworks.org>]

I apologize for not taking a more active part in recent discussions. No excuses.

A couple of weeks ago, my brother Jeremy lent me his library copy of THE NEW 
CAPITALISTS: A PROPOSAL TO FREE ECONOMIC GROWTH FROM THE SLAVERY OF SAVINGS by 
Louis O. Kelso and Mortimer Adler (Random House, New York, 1961). You can still 
find used copies of this and other Kelso books via Alibris Books at 
http://www.alibris.com and Powell's Books at http://www.powells.com.

When I read the introduction I was astounded to see how clearly the authors 
addressed the issues which COG OWNERSHIP members have been discussion low these 
past two years. Note, however, that this book was written before Kelso et al 
had abandoned their use of the term "Capitalism" to describe their proposed 
system. With apologies to the publishers for quoting so extensively, I hereby 
present most of the content of the Introduction.

[BEGIN QUOTE]

Introduction and Definition of Terms

In THE CAPITALIST MANIFESTO, which we published previously, we outlined a 
practical program for bringing about the economic changes needed to transform 
our present mixed economy into a truly capitalist society. Among the measures 
proposed, one of the most important was the plan for creating new capitalists 
concurrently with the formation of new capital. This essay, devoted to 
explaining the financed-capitalist plan, is an attempt to advance our practical 
thinking about capitalism. It does not add anything except evidence of 
feasibility to the theory of capitalism as outlined out our earlier book.

Briefly summarized, that theory involves the following propositions: (1) both 
labor (the human factor) and capital (the non-human factor) are PRODUCERS OF 
WEALTH IN THE SAME SENSE; (2) the PRODUCTIVENESS of labor, except for temporary 
interruptions, has been declining since the dawn of civilization, and the 
productiveness of capital has been - both relatively and absolutely - 
increasing, as has the amount of capital employed in production; (3) 
technological change is the physical process by which the burden of producing 
wealth is gradually shifted from labor to capital; (4) political and economic 
freedom in an industrial society depend not merely upon each household's being 
entitled to CONSUME economic goods but upon each household's being entitled to 
PRODUCE economic goods; and (5) as labor progressively produces less, and 
capital progressively produced more, of the gross national product, a growing 
proportion of all households must participate in production through their 
ownership of capital and a diminishing number must depend upon the earnings of 
their labor. (Unemployement, in short, is natural and desirable in technically 
advanced economies. The task of a capitalist economy is not to fight 
unemployment at any cost, like a plague. Rather, its objectives should be to 
make certain that normal technological unemployment falls upon those who can 
afford it, and to whom it should be the greatest of blessings.)

Two facts must also be kept in mind. The first is that capital produces at 
least 90 percent of the gross national product in our economy; yet all but a 
small fraction of the capital instruments are owned (for the most part 
indirectly through share ownership) by 5 percent of the households of the 
economy. The second fact is that in spite of this concentration of apparent 
ownership, 70 percent of the income currently produced is distributed through 
labor. 

These two facts plainly indicate the extent to which private property in 
capital has been attenuated in its rights. They reveal the extent to which the 
ownership of capital is being socialized in the American economy. Similar 
erosion of private property in capital is taking place in all of the 
industrialized economies of the free world.

It will be our thesis in this essay that our conventional methods of financing 
corporate enterprises inevitably lead to the socialized ownership of capital. 
We will try to show that this results from the rigid linkage between the 
acquisition of newly formed capital.

The conventional methods of financing new capital formation involve a 
systematic concentration of the ownership of productive capital. Since a 
constantly increasing share of the wealth of the economy is produced by 
capital, the rights of concentrated ownership arising from conventional finance 
must be invaded, eroded, and attenuated, if not eventually destroyed; for to 
give full effect to the rights of such highly concentrated ownership would be 
to aggregate the great bulk of the annual income of capital in the hands of the 
capital-owning 5 percent of the households. The ultimate consequence of this 
would be the disappearance of the mass purchasing power so essential to the 
maintenance of our mass-production economy. The majority of our population 
would be plunged into poverty. This, were it to happen, would verify Marx's 
prediction that capitalism, sowing the seeds of its own destruction, will 
eventually destroy itself.

The socialization of capital which has gone on apace in the last thirty years 
has one thing to its credit: it has staved off the immediate failure of our 
economy as a result of the concentrated ownership of capital. But we do not 
believe that, in order to save our economy, it is necessary to socialize the 
ownership of capital. In our opinion, unprecedented economic growth and the 
restoration of full integrity to private property can be simultaneously brought 
about by minor changes in our business-financing techniques - changes that will 
cause them to create a capitalist, instead of a socialist, pattern of 
ownership. Corporate finance can be made simultaneously to create growth in the 
number of private owners of capital and growth in newly formed capital. The 
only limits to growth in either respect would be our manpower (a limitation 
that is more theoretical than factual), our resources, know-how, and our desire 
for wealth. 

We believe that the existence of a free society in an industrial age depends 
upon the adoption of the proposed changes in our techniques of financing 
capital formation. In the course of the following essay, we will deal with 
other implications of our proposals and with their far-reaching significance.

...

A. Wealth

Wealth consists of anything that is treated as wealth in a society, i.e. 
anything that is offered for sale or exchange, and for which a demand on the 
part of potential buyers exists. It includes both goods and services.

There are two radically different kinds of wealth. One, which we may call 
consumer goods, consists of things or services held or intended for the 
satisfaction of human wants by the consumer of such goods or services. ...

The other basic kind of wealth is capital. Capital items are things held or 
intended to be used not for immediate satisfaction of human wants, but to 
produce other goods or services. Capital wealth includes everything used to 
produce wealth except labor; it is THE NON-HUMAN FACTOR OF PRODUCTION. The 
varieties of capital are great indeed, and include such unlike things as land, 
stores, factories, residential buildings held for rental, tools, machines, 
railroads, airplanes, ships, mines, etc.

It is both common and practical to include money and credit within the 
definition of capital, although in the physical sense, neither is productive. 
The reason for this is that money and credit, being part of our medium of 
exchange and REPRESENTATIVE OF WEALTH, can be speedily converted into 
productive capital wealth. Furthermore, business practice makes a certain 
amount of working capital - money or credit - as necessary in the actual 
production (including distribution) of wealth as any of the forms or productive 
capital.

B. Savings

The term "savings" is used both in a financial and in a physical sense, but 
more commonly in the financial sense. It means, in the financial sense, money 
or credit diverted from immediate use for consumption. Although from the 
standpoint of the individual saver, savings may be held in the form of money or 
credit and not used to purchase capital goods, such "sterilization" of savings 
is and must necessarily be relatively rare. Rather, personal savings are 
normally invested in capital goods or in a bank, pension fund, insurance 
company or other financial intermediary which, in tern, perhaps through other 
financial intermediaries, "invests" or uses the purchasing power thus 
represented to buy an interest in wealth-producing capital goods.

In the physical sense, "saving" is simply the use of goods or service to 
produce capital goods rather than for immediate consumption.

Personal savings are savings by individuals. Business or corporate savings are 
made up of the wealth produced by business or corporate capital that is 
retained as working capital, or is applied to the acquisition of further 
capital goods - in the graphic term of the financial world, "new capital 
formation."

[END QUOTE]

-- 
Richard A. Stutsman, Director
WorldWorks Symposium: An inquiry into how the world works
URL <http://www.worldworks.org>