THE CAPITALIST MANIFESTO, Ó 1958
I.A Then and Now
Kelso (K) compares the purpose of the Capitalist Manifesto with that of Marx’s Communist Manifesto of 1848. His key point is that while the intent behind this Manifesto is revolutionary, it is not directed towards overthrowing the existing system, but towards calling the American people "to find in the established order the reasons for its renovation and the seeds of the better society we can develop".
I.B The Prevailing Sense of Well-Being
With this in mind, K discusses the necessity of making the arguments of the Manifesto calmly and rationally, as those to whom it is addressed, the broad body of Americans, are not suffering under the poverty and deprivation that characterized Marx’s audience. As such, it is only by showing that the present system threatens the stability and freedoms which they currently enjoy that it may be possible to bring the public to support the program set forth within the Manifesto. K then briefly identifies the elements of the Keynesian policy model which both created the current stability and threaten to undermine it:
1. Mass consumption is necessary if all members of a society are to have a high standard of living. What is more significant, mass consumption is necessary to support mass production in an industrial economy.
2. But mass consumption cannot exist or continue unless there is a mass distribution of purchasing power.
3. The power method of creating a mass distribution of purchasing power is mass employment: i.e., "full employment" or the employment of every person who would like to be employed.
4. Since prosperity and well-being depend upon the successful distribution of purchasing power, this can be achieved through progressively raising, by union pressure and legislation, wages, social security payments, unemployment compensation, agricultural and other prices; and through the free use of income taxing power and other powers of government to promote full employment.
[sections offset as above are direct quotes from text]
I.C Our Machine-Produced Happiness
K then says the credit for the expanding standard of living within this Keynesian framework is given to the expansion of increasingly efficient capital instruments, which "tend constantly and endlessly to raise the ‘productivity of labor’, and thus account for an ever increasing output of goods and services per worker employed. The principal guide to management and labor in negotiating these perpetually increasing wages is that ‘wage increases and benefits should be consistent with productivity prospects and with the maintenance of a stable dollar’."
I.D Our Feeling about Socialism
Next, K describes the opposition of the America people to socialism:
It is recognized - sometimes articulately, sometimes only intuitively - that the combination of economic power and political power in the hands of government officials is the very opposite of the American principle of the separation of powers and of our system of checks and balances. It is widely felt that such fusion of political and economic power, which inevitably results when the same bureaucracy not only runs the political machinery of the state but also wields the economic power that is inherent in the state’s ownership of industry, leads to the destruction of individual liberties...
...By creating purchasing power to provide full employment, a satisfactory standard of living for all households, and high incomes for city dwellers as well as for farmers, we seem to have accomplished all that could be desired and, once and for all, to have discredited socialism as a remedy for the ills and instability of the modern industrial economy."
I.E The Ambush
K then addresses the obvious question: given the apparent success of the current system, why a capitalist revolution? His response boils down to the following: the current economy is an admixture of socialism and capitalism, ensuring a continuing increase in standards of living by alienating private property rights through a system of confiscatory and market-distorting policies which redistribute the rightful proceeds of capital ownership. K argues that this system necessitates a revolution, as it both concentrates an increasing portion of economic power in the hands of the government and mandates universal toil of an increasingly unnecessary nature under the banner "full employment".
I.F An Appeal to Reason
K ends the chapter by stating that the principles of "pure capitalism" set forth in the Manifesto only become clear and feasible in a mature industrial economy.
II.A The Three Elements of Economic Freedom
K begins this chapter by examining the dynamics of slavery, which characterized all economic systems from ancient Greece until "the rise of industrial production and organized labor":
Aristotle distinguished between two types of slavery: (1) the chattel slavery of those who were the property of other men and so were totally deprived of property, even of property in their own labor power; and (2) what he called the "special and separate slavery" of the meaner sort of artisan or mechanic who had no property beyond his own labor power and so was forced to lead a servile life...
...At no time in the past were the working masses economically free men, nor, until the power of organized labor gave them some measure of the economic independence which property in capital always bestowed on the leisure class, were they admitted to suffrage and the political freedom of a voice in their own government.
K then identifies three ways in which the condition of slaves (in the broad sense described above) differs from that of the "economically free man": 1. The slave works as an instrument of another, while the economically free man works only for his own good and, should he choose to, the good of society; 2. The slave is dependent for subsistence on the arbitrary will of another, with no economic security, while the free man is no more dependent for survival on others than they are on him, and is relatively secure against destitution; 3. The slave spends most of his life in toil, while the economically free man is free from toil. This final distinction "can be summarized by the antithesis Aristotle draws between the servile and the free life. Some men...merely subsist; others are able, beyond subsistence, to live well, i.e. to engage in leisure activities."
II.B Labor, Leisure and Freedom
K spends the next section explaining the meaning of "leisure" at some length. Leisure means more than simple free time; it means participation in political, intellectual and cultural work. In K’s words, "Leisure, properly conceived as the main content of a free, as opposed to servile, life, consists in activities which are neither toil nor play, but are rather the expressions of moral and intellectual virtue - the things a good man does because they are intrinsically good for him and for his society, making him better as a man and advancing the civilization in which he lives."
II.C The Form and Character of Human Work
Having categorized work based upon the character of the product, K next divides work based upon the character of the activity, whether it is mechanical or creative in nature. He then argues that work which is both creative and directed towards the creation of social goods is the highest form of work, and that mechanical subsistence labor is an evil.
II.D The Image of an Economically Free Society
K ends the chapter by bringing these ideas into the context of modern industrial society:
Prior to the industrial revolution , it was almost impossible to conceive a practicable division of labor which, while securing enough wealth to provide the means of liberal work as well as subsistence for a whole society, would also permit all members of the society to engage in liberal activities as well as in subsistence work. The only practical solution seemed to be slavery or slave labor in one form or another...Prior to this century, the achievements of Western civilization - all its fine arts, pure sciences, all its political and religious institutions, were the product of the liberal work done by the virtuous members of its leisure class, just as obviously as all its economic crafts and goods were the product of the subsistence work done by its toiling masses...
Let us, then...imagine a society in which machines do all or most of the mechanical work that must be done to provide the wealth necessary both for subsistence and for civilization. Let us imagine, further, that in this society, every man, or every family, has a sufficient share in the private ownership of machines to derive sufficient subsistence from the productivity. In this automated industrial society, each man...would be an economically free man, free from exploitation by other men, free from destitution or want, free from the drudgery of mechanical work - and so free to live well if he has the virtue to do so.
K presents this vision as the true "classless society", one where all citizens are free owners, not propertyless workers utterly dependent upon the workings of a socialist bureaucracy, the hidden ruling class.
In this very brief chapter, K outlines the three central questions in establishing his vision of a classless society. The first is "The Problem of Organizing Production": how do we organize production to meet democratic objectives without sacrificing industrial efficiency? The second is "The Problem of Diffusing Ownership": how do we achieve universal capital participation in the economy? The third is "The Problem of Liberty and Equality": how do we structure the relationship between politics and the economy to avoid concentrations of economic and political power? K argues that in order to solve these questions, "it is necessary to consider the basic elements in the production and distribution of wealth, together with the role of property and rights of ownership in the organization of the economy."
IV.A Factors in the Production of Wealth
K begins the consideration described above by identifying the three categories of productive factors: natural resources, human labor, and inanimate instruments. Labor is further subdivided into physical power, mechanical skill, and creative skill. Each of the three factors can be graded on a scale from complete passivity to complete activity. Just as land is an active factor of production in agriculture, insofar as it provides productive power which human labor harnesses to produce crops, so the power-driven machine is also an active factor in production.
IV.B The Role of Man as a Factor in the Production of Wealth
In an environment where inanimate instruments are becoming more active factors of production, human mechanical labor is a proportionally diminishing source of productive power and skill. Since the productive power of a unit of labor is essentially fixed by physiological limits, the total output of mechanical labor cannot help but represent a shrinking fraction of the total production of the economy. On the other hand, because of the increasing supply of inanimate instruments, the relative proportion of output due to the application of labor to technical work (which creates and improves the instruments) and managerial work (which determines the deployment and organization of such instruments), tends to increase. Since K was defining technical and managerial work as non-mechanical, creative work, the downsizing of mid-management throughout the 1980s and 1990s suggests that perhaps the definition of "mechanical" may be a less constant boundary than K thought possible when writing the manifesto.
IV.C A Technical Note on the Productivity of Labor
This section is essentially a digression directed against the notion that replacing many workers with a smaller number of higher-skilled workers working more capital represents an increase in "productivity", meaning labor productivity. This section includes his oft-repeated and sadly unsupported assertion that labor now (as of 1958) only accounts for 10% or less of economic production. [As an editorial aside, it appears to me that many of K’s complaints about productivity analyses are answered by analytical models in use at present. Multifactor productivity models used by the Department of Labor examine changes in the composition of the capital stock and the labor pool, and decompose productivity growth into capital and labor factors, along with a measure of "multifactor productivity", which represents improvements in the way fixed amounts of labor and capital are deployed, as well as improvements in the quality of units of capital. Such models will tend to more successfully separate capital-driven production increases from labor-driven increases.]
[A more troublesome problem is that current economic analyses of the productivity of labor versus capital assume the existing labor cost structure represents a market result, and thus that current wage levels are representative of the productive contribution made by labor. I believe this represents a central reason for the difference between K’s asserted figure of 90% contribution to production by capital and mainstream labor economics’ ballpark estimate of 25% contribution by capital. This divergence means that a capital growth rate which would produce 4% economic growth under mainstream models would produce roughly 15% growth under K’s model. Results like this represent an area where Kelsoians may be vulnerable in debate if they are not prepared with explanations for why their results are at variance with accepted models, and simultaneously it provides us with an area where research may pay off by raising questions which the mainstream has not examined yet.]
IV.D The Forms of Property
K next addresses property. Property is the right to dispose of a good, not the good itself. One has innate property in oneself and one’s physical labor, but may have acquired property in any variety of goods. K references John Locke’s idea that acquired property emerged as a logical extension of innate property in one’s labor: "it is a man’s use of his innate labor power which is the basis for his appropriation of the things which God gave to all men in common." He then goes on to suggest that "a man’s right to acquired property derives from the productive use of such property as he already owns, whether that is his own labor power, his land, or his stock of workable materials and working instrumentalities." K then defines capital as acquired property in productive factors (including, for discussion purposes, the labor of owned slaves), and labor represents innate property in one’s personal labor. Except under the institution of chattel slavery, only capital ownership may be concentrated in private hands. However, under communism, the "abolition of private property" translates into the concentration of property in capital into the hands of the State.
IV.E Primary and Secondary Distribution
K defines the Primary distribution of wealth to be the provision to all participants in production a share of the output proportionate to the value of their contributions, as determined by freely competitive markets for productive factors. K characterizes any differences between this market valuation and the actual distributions as Secondary distributions. He then refers to the fact that this concept of distribution says nothing of those who under the current economy receive money for performing "non-subsistence", liberal work, such as art and law. He suggests that this is another distortion of the market system due to the twin problems that a) those who pursue such labors generally have no other means to achieve subsistence, and b) the existing system fails to distinguish between the reasons for performing liberal and subsistence labor.
V.A Property and Justice
In this chapter, K begins developing a set of normative guidelines for economic justice. He begins with the issue of the just distribution of newly created wealth. The rule he advances is "each man’s just share in the distribution of the total wealth produced is proportionate to the contribution each has made by the use of his property toward the production of that wealth." However, this brings up the question of how one determines the value of each contribution. K, in full accord with the principles of mainstream economics, places this responsibility with competitive markets.
V.B Free Competition as the Determinant of Value
K contrasts the competitive market theory of value with the labor theory of value described by Marx. The labor theory states that every commodity possesses a fixed value equal to the labor which went into its creation. In this framework, capital has no claim to a share of production, as the application of tools to production does not add to the labor content of the end product. In the market theory, however, the value of a commodity is a matter of opinion, and settles at the point where no producer is willing to cut the price to sell more, and where no consumer is willing to pay a higher price to buy more. As K points out, any other method for determining value which deviates from such market opinion "...must involve the imposition of an arbitrary opinion of value, an opinion held by one or more persons or an organized group; and such a determination of value, to be effective, must be imposed by force." For this reason, K advances the market system as the only just means of determining value.
Having shown that "the consequences drawn from the labor theory are wholly without foundation", K moves on to the question of how to deliver "a just distribution of the wealth produced in an industrial society, while at the same time (1) preserving the prosperity of the economy, (2) securing economic welfare by a satisfactory general standard of living for all, and (3) maintaining the economic and political freedom of the individual members of the society."
V.C The Problem of Justice and Welfare in an Industrial Economy
The difficulty of this problem becomes clear immediately upon attempting to apply the single principle of economic justice so far defined. As K explains, given the diminishing relative productivity of labor within the current economy, a competitively determined distribution of produced wealth "might work against the welfare of the great mass of men who work for a living, whose only income-bearing property is their own labor power, and whose only income takes the form of wages." Under such conditions, K suggests that government-supported unionization may be the only means by which laborers can receive wages sufficient for subsistence, even though it means eroding the rights of private property, as the gain of the laborers above their just proportional share requires taking from the proportional share of capital. Given this situation, he raises the question of whether it is possible to order things so that "(1) all families are in a position to earn what amounts to a decent standard of living, (2) by an organization of the economy which preserves and respects the rights of private property in capital instruments as well as in labor power, and which (3) distributes the wealth produced among those who contribute to its production in accordance with the principle of distributive justice stated above?" K then makes the following observation about the modern (ca 1958) economy:
We know that in the United States we have already accomplished what Soviet Russia eventually hopes it can do to provide a generally high standard of living [through the complete erosion of private property - ed.]. But we also know that the distribution of wealth in this country has been effected by the power of labor unions supported by the countervailing power of government, by redistributive taxation, and by government spending to promote full employment. While more than 90 percent of wealth is produced by capital instruments, about 70 percent of the resulting income is distributed to labor. Hence while private property in capital instruments still exists nominally, property rights are attenuated or eroded by withholding from the owners of capital the share of the wealth produced that is proportionate to the contribution their property makes.
K then comments that while this result meets the first of the three listed requirements, it comes at the sacrifice of requirements two and three. He then promises a solution which meets these other requirements, predicated upon two additional principles of justice.
V.D The Three Relevant Principles of Justice
K states the three principles, which in different forms are at the core of all of his writings:
1. The Principle of Distribution
Among those who participate in the production of wealth, each should receive a share that is proportionate to the value of the contribution each has made to the production of that wealth.
2. The Principle of Participation
Every man has a natural right to life, in consequence whereof he has the right to maintain and preserve his life by all rightful means, including the right to obtain his subsistence by producing wealth or by participating in the production of it.
[K adds the commentary that this principle demands that every household "must own property in the means of production capable, if employed with reasonable diligence, of earning by its contribution to the production of wealth a distributive share that is equivalent to a viable income."]
3. The Principle of Limitation
Since everyone has a right to property in the means of production sufficient for earning a living, no one has a right to so extensive an ownership of the means of production that it excludes others from the opportunity to participate in production to an extent capable of earning for themselves a viable income; and consequently, the ownership of productive property by an individual or household must not be allowed to increase beyond the point where it injures others by excluding them from the opportunity to earn a viable income.
[K adds the commentary that this principle identifies slavery as unjust, as it makes men propertyless in all productive factors, and that "in an economy in which the private ownership of capital...is the basis of an effective participation in the production of wealth, injustice is done when the ownership of capital is so highly concentrated... that others are excluded from even that minimum degree of participation in production which would enable them justly to earn a viable income for themselves."]
V.E The Organization of a Just Economy
K follows these principles with a 17 page examination of the subtleties of these three Principles. There are several points of note imbedded within this section. The first is K’s discussion of scientific knowledge, an element which might initially be considered a productive factor worthy of compensation within the Principle of Distribution. Kelso points out that since scientific knowledge in the public domain may be utilized by anyone, it makes no sense that those who fail to do so should receive a share of the output from the activities of those who do. [I have considered this problem for several years, and I have to say that the simplicity of this logic is one of many points where K’s attempt to isolate the root of the problem of poverty seems to pay off. Adopting the Principles of Participation and Limitation would address many of the conditions which force consideration of some form of social dividend from technologically-derived wealth in other utopian proposals, a messy proposition at best, without interfering with the normal mechanisms of the market.]
K attempts to make an abbreviated but similar argument regarding government services:
Under an equitable system of taxation, all members of society contribute to defray the costs of government. All are equally entitled to take advantage of those services performed by government which are helpful to anyone engaged in producing wealth. Hence, here as before, there is no ground for maintaining that those who make use of this right are not entitled to the benefit derived from the use they have made.
While K clearly fails to give any consideration to the porkbarreling and other dysfunctions which are commonly recognized in modern politics (such as W. Virginia receiving the vast majority of Federal highway funding under Sen. Byrd), this is another case where it becomes clear on reflection that current realities which K ignores are symptoms of the Principles of Participation and Limitation being completely non-functional under the current system. Within K’s analysis of the relationship between political and economic justice, fully functioning economic justice would tend to prevent the concentration of political power which drives many of these political excesses (although not all; as any modern political scientist can tell you, democratic government has some inherent flaws and structural contradictions).
K also discusses the Principle of Participation and the concept of "a living wage". K makes it clear that Participation in modern economies demands what might be termed the Capitalization of the Living Wage:
...When the great bulk of the wealth is produced by capital instruments, the principle of participation requires that a large number of households participate in production through the ownership of such instruments.
The principle of participation entails a right to produce wealth in a manner consistent with the way wealth is in fact being produced, taking full advantage of the existing state of technology.
The right to earn a viable income is thus seen as the right of every man or family to own property which, under the prevailing system of producing wealth, is capable of enabling its owner to contribute to the production of wealth to an extent that justly entitles him to receive in return an earned income to support a decent standard of living.
VI.A First Stage: From the Beginning of the Nineteenth Century
VI.B Second Stage: From 1800 to the Present Day
K next moves from discussion of principles of Economic Justice to an attempt to identify the primary attributes of historical economies. In a nutshell, K characterizes economies predating the industrial revolution as laborist, while all industrialized economies are capitalist. Laborist economies are those where "..labor is the chief force in the production of wealth, and where it is the sole form or the principle form of productive property entitling its owners to shares in the distribution of the wealth produced," while capitalist economies are those "...in which capital instruments are the chief productive force and, together with natural resources, constitute the principle form of productive property entitling its owners to shares in the distribution of the wealth produced."
VI.C The Classification of Economies
K next points out that in addition to characterizing the means of production, laboristic and capitalistic may be applied to describe the means of distribution. As an example, primitive societies are generally laboristic in both production and distribution, while classical slave societies were laboristic in production but capitalistic in distribution (characterizing slave ownership as a form of capital, as it gave the owner property in something other than his own labor - the slave’s labor). K makes it clear that he will label economies by their primary mode of production.
VI.D The Forms of Capitalism
K next attempts to classify Capitalist economies along several dividing lines:
1. The Mode of Ownership
There are two modes of ownership: primarily private, and primarily public (State Capitalism).
2. The Form of Distribution
As described in section VI.C, distribution within a capitalist economy may be either laboristic (those who contribute only their labor receive the majority of the output) or capitalist (the major portion of the wealth produced goes to the owners of capital). K points out that capitalist economies where the mode of ownership is primarily public use a laboristic form of distribution out of necessity, while those where the mode of ownership is private and concentrated cannot have a purely laboristic form of distribution, but may range from purely capitalistic in distribution to partly capitalistic and partly laboristic.
3. The Principle Underlying the Form of Distribution
The final distinction is between those economies where the "...principle underlying the form of distribution is either (a) one of strict justice, based on the rights of private property in capital and labor... or (b) one of charity." In this case, charity means concern for human needs, as opposed to justice’s concern for human rights.
From this framework, K gives a quick description of the history of the western economies, and an explanation of what is going wrong. With the advent of the industrial revolution, the western economies became increasingly capitalistic in production, a trend which continues to this very day. Following what had historically been a justice-based distributional pattern, the industrializing economies adopted an increasingly capitalistic form of distribution. However, the concentration of ownership grew as production became increasingly capitalistic, and justice gave way to pragmatism as the underlying principle of the distribution system. Increasingly, the rights of property in capital were sacrificed to ease the suffering of the workers. As K puts it:
These good ends were served, however, without correcting the injustices of the nineteenth-century capitalism which was self-destructive as well as inhumane because, with a highly concentrated private ownership of capital, it maintained a purely capitalistic form of distribution. On the contrary, the mixture of a laboristic with a capitalistic form of distribution in a capitalist economy, especially in a technologically advanced one in which nine-tenths of the wealth is produced by capital instruments, does serious injustice to the owners of capital. It invades, attenuates, or erodes their property rights in capital in proportion as it makes a larger and larger cut in the distributive share which should be theirs by right of earning it in order to increase the distributive share given to owners of labor power, which is for the most part not earned by them
The only options available under these circumstances are either an increasing shift towards greater and greater erosions of the rights of capital, eventually forcing the adoption of communist methods to apportion the output of the economy based upon the principle of charity, or the adoption of the Principles of Distribution, Participation and Limitation, the Capitalist Revolution, which "...by seeking to make all men capitalists... strives to make effective their right to live on what they can earn by their capital property as well as by their labor, as men should be able to live in a society where capital instruments produce most of the wealth."
VII.A The Four Capitalisms
VII.B The Three Alternatives
K begins this chapter by noting the four distinguishing characteristics of the three historical forms of capitalism, as well as those of his proposed revolutionary form. Primitive capitalism is characterized by:
(a) private ownership of capital instruments; (b) no limitation on, and hence undue concentration of, such ownership; (c) a capitalistic form of distribution with full returns to the owners of capital of what their productive property earns; (d) a bare subsistence standard of living, or worse, for the laboring masses in the population.
The next form identified is State capitalism, the term K applies to the economy of the Soviet Union (ca. 1958):
(a) public ownership of capital instruments; (b) complete concentration of such ownership in the hands of the State, or in what for all practical purposes become the hands of the bureaucrats who wield the political power of the State; (c) a laboristic form of distribution, controlled and administered by the State for the economic welfare of the workers; (d) a much improved basic standard of living for the masses, with a scale of differential incomes added to provide incentives, not earned rewards, for the most highly productive types of labor.
The third and final "historical" form is mixed capitalism, the term K applies to the structure of the western economies:
(a) vestigial or nominal private ownership of capital instruments; (b) no limitation on, and hence still undue concentration of, such ownership...; (c) a form of distribution that is partly capitalistic and partly laboristic, according to which owners of capital receive some share of what their property produces but much less than they are entitled to as measured by its contribution, and according to which those who participate in production through mechanical labor alone receive a much larger share than such participation earns by its contribution; (d) a generally high standard of living for the laboring masses in the population
K then contrasts this historical review with the details of revolutionary capitalism, or Capitalism, as he chooses to label it:
(a) the private ownership of capital instruments, restored to full effect from its present nominal condition and attenuated rights; (b) the widest possible diffusion of such ownership to provide effective participation in the production of wealth for all members of the economy; (c) a capitalistic form of distribution with fully paid out capital earnings to owners of capital, and with an ultimate reduction of the wages of labor to what labor’s contribution earns, as measured by demand under freely competitive conditions; (d) a high standard of living for all, based on a minimum viable income for individuals or families, derived, in most cases, from participation in production as owners of capital or as owners of labor and capital.
K notes several points where primitive capitalism differs from the other three. The most important differences were two aspects of the same phenomenon: the small share of economic output distributed to laborers not only left them with a miserable standard of living, but as a consequence undermined the stability of primitive capitalism by failing to provide the aggregate demand required to absorb industrial production, thus creating the crisis of overproduction noted by Marx.
K also notes that in many ways State and mixed capitalism share much more with each other than with the other forms. Not only are both predicated upon full employment as the mechanism for ensuring standards of living and aggregate demand, a situation which encourages wasteful public spending to expand labor demand, but they are also to differing degrees driven by attenuation or elimination of private property rights in capital. K finds this disturbing in that this makes mixed capitalism particularly vulnerable to shifts toward State capitalism in situations of economic crisis.
In the context of these systems, K presents a basic choice for the future of capitalism: State capitalism, which K writes off as unacceptable to the western world due to the political consequences of such concentration of economic power; mixed capitalism, which appears an untenable compromise situation; and revolutionary capitalism, which promises a reduced threat of authoritarian intervention in the economy, improved standards of living, and a historically unprecedented chance for the entire citizenry to enjoy economic freedom to match its political freedom, with the freedom from toil that entails.
VII.C The Two Socialist Revolutions
K characterizes both alternatives to revolutionary capitalism as socialist revolutions, with State capitalism representing a Completed Revolution, and mixed capitalism representing a Creeping Revolution.
1. The Completed Socialist Revolution
K goes on at quite some length in mounting what is essentially a defense of Marx. He points out that the heart of Marx’s argument was that the ongoing concentration of ownership of an expanding industrial base was creating misery for the "proletariat", which is essentially K’s point as well. However, K points to Marx’s solution, the elimination of private property in capital, as the essential failing in his theory. [It is worth noting that K’s financial experience in a fiat currency economy was a resource Marx lacked, and it was undoubtedly a near impossibility for Marx to see how to eliminate concentrated ownership without eliminating private ownership, as he had no model for how the masses could achieve ownership other than through expropriation]. K also notes that Marx, starting from a concern for justice, ended with a solution predicated upon charity made possible by injustice: by imposing a laboristic form of distribution upon a capitalist mode of production, citizens under State capitalism are made dependent upon the State for subsistence, essentially reducing them to the status of slaves.
2. The Creeping Socialist Revolution
K’s main point in this section is that mixed capitalism represented a necessary adjustment to primitive capitalism if it was to survive the collapse which Marx predicted. Unfortunately, in following the Keynesian prescription to boost consumption without addressing the underlying injustice of concentrated capital ownership, mixed capitalism was forced to balance the consequences of one injustice with the consequences of an additional one. Since the impact of automation is ongoing, there is no clear balance point beyond which mixed capitalism will not progress, which makes the creeping description apt. K also suggests that mixed capitalism, like the primitive capitalism it was meant to save, may contain "the seeds of its own destruction".
VII.D Mixed Capitalism’s Insoluble Problem: Inflation
K proposes that the central instability within mixed capitalism is inflation. Given both increasing productivity due to improved automation and a stable workforce, the only way to ensure full employment is to artificially stimulate demand through mechanisms such as union-negotiated and government-mandated wage levels in excess of what would be determined within free labor markets, deficit spending, and government-supported private sector construction of new housing and commercial real estate. All of these factors increase the dollars available to purchase the output of the economy, thus driving prices above what they would be without such widespread government intervention. K refers to the concept of voluntary wage and price controls, which at the time of writing were billed as allowing "full employment without inflation", and basically evaluates it as a proposal that "future capital formation should be subject to a process of socialization". Thus, mixed capitalism presents the options of 1) maintaining the status quo at the cost of confidence in the monetary system due to long-term inflation, bringing about its collapse, or 2) advancing the process of socialization of the economy, bringing on State capitalism. Once again, a capitalist revolution appears to be the only solution.
[This analysis is intriguing in the context of the current economic situation (Oct. 1997), as described both in daily headlines and in Greider’s One World, Ready or Not. If we accept the evidence that the process of economic globalization is exerting an increasing deflationary pressure on the world economy, then the current conditions in the United States of "strong" economic growth coupled with minimal inflation may represent a temporary dilution of the ongoing inflationary pressures identified by K within a broader deflationary trend which will last for only a couple more decades, as the major international price imbalances flatten out. Once these deflationary pressures abate, we may either find ourselves facing long-term inflation of the sort which was present from the 1960s through the mid-1980s, as the inflationary tendencies of the economy return in full force, or, should the current trend towards eliminating the welfare state continue along with the decline of the union movement, we may face an drop in consumption due to decreases in labor demand (a likely outcome once international wage levels stabilize and automation becomes the main means to reduce labor costs), and as a result, face the crisis of overproduction characteristic of primitive capitalism.]
VII.E Our Only Choice - Capitalism
Having identified where the other options fail, K now makes a case for the active pursuit of a capitalist revolution on the grounds that it is not only an alternative to these failed/failing systems, but that is itself a positive good. First, revolutionary capitalism clearly embodies ideals economic justice, as laid out in the first section of the Manifesto. As a corollary to this, it is the clear economic counterpart of democracy; by eliminating the distinction between owner and worker, revolutionary capitalism produces a truly classless society, one where all individuals are equal in their rights of both political and economic self-determination. K makes a particular point of this, since many of the historical justifications for restriction of suffrage were predicated upon differences of economic class and the consequences of those differences:
It was felt that since the propertied and the propertyless did not belong to the same economic class, neither should they belong to the same political class. Furthermore, it was thought that the owners of property, by reason of their property, had more at stake than the propertyless workers; and in a sense they did. This led to the maxim that the country should be run by those who owned it. Finally, John Stuart Mill pointed out, as Aristotle had before him, that the trouble with making workingmen citizens is that they had neither the education to fit them for the duties of citizenship nor the leisure in which to exercise citizenship be an active participation in government.
While K acknowledges that the time and education concerns have been addressed without recourse to revolutionary capitalism, the economic independence which allows free expression of political independence is still outside the grasp of all but capitalists. He points out that this belief underlay Thomas Jefferson’s vision of an agrarian economy as the basis of a democracy. Ultimately, however, the greatest good which may be ascribed to revolutionary capitalism is that in liberating the economy from the requirement of full employment as a means of maintaining demand, it also liberates individual citizens from the requirement of toil. As K puts it:
...the ultimate aim of Capitalism, beyond the establishment of economic justice and freedom, is the enjoyment of leisure by all men in the major portion of their life’s time.
VIII.A The Economics of Capitalism
In the final chapter before laying out the specific policy proposals for implementing the Capitalist Revolution, K brings together all of the key ideas of the previous chapters. He begins by identifying the essential elements of the economics of revolutionary capitalism: 1) Capitalistic production of wealth (see section VI.C); 2) Diffuse private ownership of capital; 3) "The production of wealth by the voluntary association and cooperation of private owners of the factors of production... in which most of the persons involved will function as capitalists as well as workers"; 4) distribution of wealth based upon free market valuation of the productive factors; 5) "the progressive reduction of labor force...with the progressive automation of industrial production; and a steady increase in the employment of men in leisure work..."; 6) maintenance of living standards through adequate household incomes composed of wages and capital dividends; 7) maintenance of aggregate demand without artificial expansion of production; 8) promotion of automation.
K follows the recap with a list of fallacies in the thinking behind mixed capitalism which the Capitalist Revolution directly challenges. Ultimately, they are all consequences of the failure to recognize the instability and injustices created by the concentration of capital.
VIII.B The Politics of Capitalism
In this section, K explicitly describes the appropriate role of government, the corporation, and the union in a revolutionary economy. First, government has a very definite and active role to play in revolutionary capitalism: regulating of the economic system to prevent violations of the Principles of Economic Justice: Distribution, Participation and Limitation. This mandate includes ensuring universal access to capital credit, guaranteeing free markets in both capital and labor, and preventing monopolistic accumulations of capital. On the other hand, K also states that production of or redistribution of wealth are inappropriate activities for government in a functioning revolutionary economy.
K also sees a need to alter the roles of both unions and corporations. In both cases, much of their current activity is predicated upon the attenuated property rights of capital owners. Corporations finance their growth by retaining their earnings in violation of the shareholders’ Distribution rights rather than competing for new capital in the market, and both labor and corporations serve as agents for government-sanctioned redistribution of wealth to labor. K envisions corporations distributing all net income to shareholders, both restoring full rights of property in capital and increasing accountability of management. As for unions, they will need to take on an expanded role, defending the property rights of the worker-capitalists who make up their memberships, and serving as "agencies of economic education of the newly made capitalists."
VIII.C The Ethics of Capitalism
K expresses his deepest utopian ideals in this section. He feels that the modern economy suffers from a basic ethical error: "mistaking the means for an end." The glorification of toil and the acquisition of wealth without purpose represent the two ethical failings of the mixed capitalist economy, failings which will have to be overcome through education if revolutionary capitalism is to succeed. In regards to the former, K states "unless an early release from the compulsion of subsistence work for all ranks of labor...is regarded...as a promotion or graduation to better employments, Capitalism offers a dreadful prospect instead of an inspiring challenge." As to the latter, he writes "...the attitude which looks upon the accumulation of wealth - without limit - as a morally acceptable measure of human achievement, must necessarily lead men to reject the proposition that the individual acquisition and accumulation of wealth should serve the things that wealth itself is needed to support."
IX.A The Nature of the Proposals
[This chapter is where K distinguishes himself from almost every other writer on Utopian economics I have ever encountered: he has a way of getting from here to there that doesn’t involve guns or unbelievable political miracles. This alone justifies the attention of anyone who agrees with his basic objectives of eliminating poverty and promoting democracy.]
K prefaces the presentation of explicit policy proposals by explaining that he does not consider them the last word. In fact, he had initially resisted laying out a full implementation plan, as he could not envision a single person laying out a plan for a decades-long process which would cover all important contingencies and future developments. However, he finally succumbed to personal hubris in order to address questions which continually arose while explaining how revolutionary capitalism would work.
[The two following sections are drawn verbatim from the text, as K is remarkably concise in this section]
IX.B General Policies
The following general policies should guide the course of action to be undertaken. Our concerted effort should be:
1. To broaden the ownership of existing enterprises.
2. To encourage the formation of new capital and the organization of new enterprises owned by new capitalists.
3. To discourage the concentration of the ownership of capital by households where such concentration has passed beyond the point determined to be the maximum consistent with a just organization of a completely capitalistic economy.
IX.C Specific Recommendations
Pursuant to the general policies state above, we recommend the following specific measures:
1. Increasing the use of equity-sharing plans in industry.
2. Modification of death and gift tax laws to encourage the creation and inheritance from generation to generation of a vastly increased number of viable capital estates.
3. As the transition to Capitalism progresses, elimination of the corporate income tax, together with adjustment of the personal income tax for purposes of raising the necessary revenues of government from all the households of the economy in an equitable manner.
4. Elimination of governmental practices which directly aggravate the concentration of the ownership of capital.
5. Effective regulation of the economy by government to assure that free and workable competition is maintained in all markets except those rare instances in which, for technical physical reasons, monopolies must be permitted.
6. Recognition by the government of its obligation to assure all households in the economy a reasonable opportunity to participate in the production of wealth the an extent sufficient to earn a viable income.
7. Adoption of legislation designed to require mature corporations to pay out 100 percent of their net earnings to their stockholders.
8. Development of a system of investment preferences for those households which have subviable capital estates, in order to promote their acquisition of viable capital estates.
9. Encouragement of the acquisition of viable capital holdings by all households in the economy by tax and credit devices, accompanied by restrictions on the use of these devices calculated to prevent their being misused to develop concentrated or monopolistic holdings, or their being used for speculative purposes.
10. Primary use of our credit system to promote new capital formation under the ownership of new capitalists in holdings of submonopolistic size, together with a diminishing use of credit to support consumption as balanced participation in production is progressively achieved.
X.A The Situation from Which We Start
K begins the discussion of "how to get from here to there" by describing the conditions which characterize here. He leads off by giving an upbeat appraisal of the current economy’s viability as a starting point for a capitalist revolution. Specifically, not only is there already a profusion of capital already in production, which gives a good base for further expansion, but in maintaining the current mixed economy, "we are submitting to measures already more severe...than those necessary to effect the capitalist revolution over a reasonable period of time", suggesting that much of the resistance which might have faced a capitalist revolution in decades past has already been directed against policies and laws which could be dismantled as the revolution progresses.
X.B The Role of Primary Distribution in a Capitalistic Economy
X.C Individual Security vs. Security for All Individuals
In these two sections, K lays out an explanation for the concentration of capital ownership present in the modern economy. He begins with the idea that any amount of wealth produced by an economy creates as a consequence an equal amount of purchasing power. K notes that under a revolutionary capitalism, the distributive pattern of the economy is fixed by the primary distribution of this purchasing power, and implies that the distributive pattern of mixed capitalism is fixed by secondary distribution. In any case, those who receive the highest incomes are those who are most able to acquire capital or expand their existing holdings. Given that the productivity of capital is rising relative to that of labor, those households with the largest capital holdings are best able to acquire more, thus leading to the extreme concentration of ownership we see today.
X.D The Degree of Concentration in the Ownership of Capital
K provides some concrete statistics on the concentration of ownership in the US economy circa 1958. The figures have not changed significantly in the intervening 40 years.
X.E The Forms of Concentrated Ownership of Capital
K notes that most capital is in fact owned by corporations, which are then in turn owned by shareholders. Insofar as some portion of the net earnings of a corporation are diverted from the shareholders, that portion of the shareholders’ ownership is only nominal. K notes that such nominal ownership may come about through actions by either the state (such as taxation on the corporate earnings) or the corporation (such as withholding earnings for growth, in effect forcing the shareholders to reinvest without their consent). K also notes that within a highly industrialized economy with a low demand for labor, a large capital holding and a high-wage employment within the same household may combine to create a monopolistic concentration of purchasing power.
X.F How Mixed Capitalism Deals with the Effects of Concentrated Ownership
K now gives a detailed list of how mixed capitalism provides sufficient aggregate demand to support the economy without addressing the concentration of ownership. These include 1) graduated income taxes; 2) the legal empowerment of corporate management to withhold net earnings unilaterally; 3) government-supported/subsidized mortgage programs; 4) easy consumer credit; 5) agricultural subsidies; 6) work restrictions (union-driven and otherwise); 7) government-supported collective bargaining; 8) unnecessary defense spending; 9) foreign aid grants for purchase of US products; 10) inheritance and gift taxes; 11) tax-code encouraged charitable foundations.
K notes that many of these mechanisms, while expanding purchasing power, tend to further concentrate nominal capital ownership, which dictates further government intervention to keep the economy functioning.
XI.A Equity-Sharing Plans
K begins with what has become the big gun of the capitalist revolution to date, describing in an early approximation of the ESOP. The most important points K makes are that equity-sharing plans are most useful for revolutionary purposes "where they are of such magnitude that the income from the equities accumulated for an employee can make a significant addition to his worker income". He also points out that organizing them exclusively as retirement plans limits their revolutionary potential by coupling them to the concept of "full-employment", taking as a given that the beneficiaries of the plan will always work for a living.
XI.B Modification of Death Tax Laws and Gift Tax Laws
K notes here that as currently composed, steeply graduated taxes on transfers of capital accumulations actually encourages further concentration of ownership, as only those who already possess large capital holdings can afford to purchase the holdings which must be liquidated in order to pay the taxes. The option of creating charitable foundations to avoid such taxes only shifts the concentration from private ownership to (effectively) public ownership.
In proposing modification to these laws, K introduces the concept of viable and monopolistic capital holdings, the former being a holding sufficient to support a household, the latter being large enough to infringe upon the rights of other to acquire viable holdings of their own. He then advocates that "...gifts and bequests which facilitate the creation of viable capital holdings should be wholly free of tax." Just as importantly, "the effect of gifts and bequests would be measured after the gift or bequest...if [the households’] capital holding exceeded the monopolistic limit after the gift or bequest, that part in excess of the limit would be progressively and steeply taxed" He provides figures to show that the amount of tax revenues lost would be minimal [and they have probably declined since 1958]. He also proposes allowing "equity interests in closely held businesses to be distributed to employees through nondiscriminatory equity-sharing plans" on a tax-free basis as an estate alternative for business owners.
XI.C Modification of Personal Income Tax Laws
K next advances the suggestion that
We should try to discover the extent to which personal income tax deductions might be safely permitted to allow for transfers of wealth that facilitate the broadening of our economy’s capital base. Within certain limits, it might thus be possible and advisable to place such transfers on a parity with contributions to charity, so far as the personal income tax laws are concerned.
XI.D Terminating Deliberate Governmental Promotion of Concentration of Ownership
and of Market Monopoly
K uses a specific policy, the "five-year amortization of emergency facilities" program, as an example of government policies which directly enhance the ability of those who have capital to get more. Other indirect examples he cites are the government-allowed withholding of corporate net earnings from shareholders, which increases the capital content of their existing shares (if at the cost of attenuating their property rights in those shares), and the government support for and promotion of inefficient employment practices, which raise operating costs to levels which discourage new business enterprises with their attendant formation of new capital in the hands of (frequently) new, or at least new-ish, capitalists.
XII.A Corporations in the Present Mixed Economy
K states that the corporation is an ideal vehicle for organizing industrial production, but as it currently functions he views it as central element of mixed capitalism. He identifies three ways in which corporations facilitate the laboristic distribution of wealth in an economy with a capitalistic form of production: 1) they are subject to steeply graduated income taxes, which help fund government redistribution programs; 2) they are the largest employers of organized labor, the main force raising wages above competitive levels; and 3) they are permitted to retain and invest in further expansion earnings which should be paid out to shareholders, which enables the corporation to accede to the demands of labor unions for non-competitive wage increases.
XII.B Corporations in the Transition to Capitalism
To reverse this situation, K proposes several objectives for the reformation of the corporation: 1) revitalization of the property of stockholders in the capital immediately owned by their corporation; 2) the greatly expanded use of present corporate income taxes as instruments for diffusing private ownership of capital; 3) the reduction and eventual elimination of corporate income taxes as the transition advances and the economy approaches "capitalistic balance"; 4) the regulation of business corporations by government in accordance with the principles of Capitalism; 5) Government regulation of business corporations so that, on the one hand, they may grow to such size as to enable them to employ fully the most advanced techniques of production; and so that, on the other hand, they will not become so large as to impair free competition in the markets affected by them. 6) the employment by government of all reasonable and proper powers to carry out the transition to Capitalism.
XII.C Restoring Effective Ownership of Capital to the Stockholders of Business Corporations
In this section, K argues that requiring mature corporations to pay out all net earnings to shareholders on a regular basis will return to shareholders full control over the disposition of their capital holdings, and placing corporate management in a position of full accountability, where they must regularly justify their performance and future plans in order to gain support from the current and future shareholders who own the corporation.
XII.D Financial Efficiency in Business Corporations vs. Technical Efficiency
K makes a brief case for subordinating the financial efficiency of corporations to the technical efficiency of the economy as a whole. In other words, negative impacts on the ability of some corporations to finance their ongoing expansion should not stand in the way of changes which will enhance the functions of the free market.
XII.E Other Changes Affecting Business Corporations
K notes two other issues relating to corporations. The first is to that it would assist the transition to revolutionary capitalism if new enterprises were favored over existing enterprises when encouraging the formation of new capital for new capitalists, in order to enhance competition within an economy dominated by oligopolies. The other is that when government is involved in the creation of new capital, it should encourage the formation of new capitalists and new corporations rather than foster increased concentration of ownership. Finally, K offers the caveat that government "should be cautious to go no further in diverting new capital formation away from the giant corporations than is necessary to restore competitive markets and to bring about a workable diffusion of ownership."
XIII.A Investment Preference for Small or New Capitalists
K here notes that the best investments have historically always been available primarily to those who already possess large capital holdings. He suggests that during the transition to revolutionary capitalism, it may be desirable for government to mandate preferential investment opportunities for those with subviable capital holdings when new securities are floated, giving the small fish first shot at secure and desirable investments, and restricting those with substantial holdings to investment in more speculative or low-growth investments.
XIII.B Income Tax Deterrents to Personal Concentration
Here K examines the theoretical situation where the demand for jobs in a revolutionary economy exceeds the demand for human labor. In such a situation, K suggests that the government, to ensure the Principle of Participation, use tax policy to discourage households with viable capital holdings from engaging in labor, in order to ensure that those who possess subviable holdings are able to achieve an acceptable standard of living.
XIV.A The Primary Function of Credit in a Capitalistic Society
XIV.B Historical Precedents
In this section K outlines historical lessons which may be used when contemplating dramatic expansion in the number of capitalist. First, there have been no wide-scale attempt to develop financing techniques to support diffusion of capital ownership, as there has been no persuasive argument in the past that it was a necessity. If we look more generally at historical attempts to expand capital ownership, however, the Homestead act shows that "families who have no proprietorship of productive property but who understand the advantages of it can quickly shift from an environment in which they are wholly dependent upon wages from toil to one in which their income is in substantial part derived from their ownership of productive property."
XIV.C Credit and the Diffusion of Capital Ownership
K here points out that there is no logical reason why it would be infeasible to expand capital credit access substantially. A key point is that the wide availability of consumer credit and the restricted availability of capital credit is the reverse of what it should be according to logic, since capital credit enhances the ability of the borrower to repay the loan, while consumer credit does not.
XIV.D Financed Capitalists
K suggests several financing mechanisms which might be used in expanding capital ownership, including: standard loans secured by a pledge of the equities purchased; installment payment plans; and strictly regulated exceptions to existing margin requirements. He states that it is important that household consumption not be excessively restricted as a result of financing capital acquisition. In addition, he suggests that interest on such financing be made tax-deductible. He also states explicitly that government, as far as possible, should leave the task of providing credit facilities to existing financial institutions.
XIV.E The Need for New Types of Insurance
Here K advances the idea of investment risk insurance. The purpose of this insurance would be, in case of loan default, to cover a portion of the difference between the remaining loan and the value of the security. This would serve to minimize the risk to banks when they finance a viable investment.
XIV.F The New Capitalists
The main point of this section is that the overall focus of the reformed economy should be to allow all households to acquire viable capital holdings, and as a corollary eliminate the assumption that subsistence labor is the natural focus of life, and all of attendant baggage in society.
Also worthy of mention in this section is a footnote where K suggests that the excess of persons seeking subsistence employment over the number of viable employment opportunities can be used as a gauge for determining the cut-off level for monopolistic capital holdings. When the number drops, restrictions on capital holdings can be eased, and when it rises, the holdings may need to be tightened.
By way of summarizing his argument, K brings together all of the ways in which revolutionary capitalism is superior to mixed capitalism:
(1) Capitalism recognizes that capital is the principal producer of wealth in an advanced industrial economy. Mixed capitalism must continue to pretend that human labor is the principal producer of wealth.
(2) Capitalism acknowledges that subsistence work, which is mechanical in quality, is an evil that men are compelled to endure to a certain extent but which, since it is humanly unrewarding, should be reduced to the minimum in human life. Mixed capitalism cannot afford to acknowledge the clear distinction between doing necessary labor for extrinsic compensation and the free engagement of men in liberal and creative pursuits; nor can it accept the superior human worth of work that produces the goods of civilization over work that produces the goods of subsistence.
(3) Capitalism makes possible an eventual reduction of the tax burden to the point at which the revenue government procures by taxation does no more than pay the operating costs of its services. Mixed capitalism must contemplate a constantly growing tax burden the revenues from which, in excess of the costs of government, must be used by the government to redistribute wealth in ways that prevent the economy from collapsing.
(4) Capitalism gives maximum encouragement to technological improvements that progressively make the production of wealth more efficient and at the same time transfer more and more of the burden of it from men to machines. As one of the main consequences of its laboristic distribution of wealth, mixed capitalism tends to retard technological progress.
(5) The broadening of the ownership of existing capital and the creation of new capitalists wit the formation of new capital can be carried out by self-liquidating means. The laboristic redistribution of the wealth produced by capital is never self-liquidating. Instead it liquidates private property in the capital instruments which produce the bulk of an industrial economy’s wealth.
(6) Under mixed capitalism, the laboristic redistribution of wealth is a never ending process. It must continue, driven by the force of technological progress, until all the wealth of the economy is distributed under the control or mandate of central government. Under Capitalism, and even in the transition to Capitalism, the ever increasing number of proprietors of capital permits an automatic and direct distribution of wealth through participation in production.
(7) Under mixed capitalism, the alienation of private property in capital and the attenuation of its rights, together with the assumption by government of the powers needed to redistribute wealth and thus maintain the economy, lead to the concentration of economic and political power in the hands of central government. Under Capitalism, the restoration of private property in capital and full respect for its rights, together with the elimination of the need for government to engage in the distribution of wealth, keeps political and economic power in separate hands and gives the individual proprietor of capital the economic power and independence he needs as a leverage against improper encroachments by government. As capitalists and only as capitalists can the citizens of an industrial democracy preserve and strengthen their free political institutions.
(8) Capitalism alone is perfectly compatible with democracy, alone provides it with the economic substructure it needs, and alone creates the justly organized industrial economy that is the counterpart of the unalterable conditions of a mass society, mixed capitalism necessarily tends away from democracy and towards socialism, i.e., State capitalism with its inevitable concomitant, the totalitarian state.
(9) Capitalism achieves general economic welfare through economic justice in the distribution of wealth and thereby achieves it with no loss of human dignity or freedom. Mixed capitalism achieves general economic welfare through a mixture of charity and expediency in the distribution of wealth, and consequently degrades men either to the condition of children benevolently provided for or to the condition of puppets used as means to economic ends.
(10) Capitalism and democracy together create an approximation of the ideal classless society in which all men are citizens and all are capitalists, and in which the good life that was possible only for the few in the pre-industrial plutocracies and slave economies of the past becomes equally possible for all. Mixed capitalism must always remain an economically class-divided society, in which the perpetuation of the class war involves a continuing conflict of interests and struggle for power. Unless the ultimate resolution of the class war is found in Capitalism through justice for all and with freedom for all, it will be found in socialism and the totalitarian state - that caricature of the classless society in which all men are equally enslaved, for none has the political freedom of a citizen or the economic freedom of a capitalist.