With the 1848 publication of The Communist Manifesto, in what may be among the most renowned (or notorious, depending on your econo-political persuasions) opening lines in all of social and economic literature, Karl Marx and Friedrich Engels proclaimed to the world that there was a specter haunting Europe.  Today, in listening to the myriad analyses which have already emerged regarding the recent and on-going financial and economic crisis, and even more so in listening to the more recent hearings, summits, and conferences conducted at universities, think tanks or in Congressional committees and sub-committees, one becomes more and more palpably cognizant that not merely Europe, but the entire world is presently being haunted by a very different, and perhaps even more insidious specter than the one which Marx and Engels proclaimed to be loose in the Europe of 1848: namely, it is the unrecognized specter of oversight; an oversight associated with what might be reasonably designated as the paradigmatic hubris of a prevailing econo-theoretical conventional wisdom.  While it will be the intent of this essay to more fully unpack what is meant by and entailed from this admittedly provocative assertion, it may be useful to ease into doing so somewhat indirectly.


At the University of California, Berkeley in early 2010, former President, Bill Clinton, gave what may be the most important speech of his long career in public service. The title of this remarkable speech was, Global Citizenship: Turning Good Intentions Into Positive Actions (see: ).  In seeking to distinguish the different challenges which the developing and developed nations of the world face, in addition to an emphatic focus on the importance of addressing the widening global disparities in wealth distribution, one of President Clinton’s key points of emphasis was to stress that the former were profoundly challenged by capacity problems whereas the latter were challenged, perhaps equally, by structural and rigidity problems which made it very difficult for them to actually make necessary changes due to inertia, resistance by entrenched interests, and other factors, even when overwhelming evidence of the need for change might be screaming out from unmistakable evidence of systemic problems.  While a whole range of obvious cases might be cited - health/medical policy, energy/climate policy, a need to prioritize various forms of infrastructure and education investment, etc. – the focus here will be on something much less obvious.  Indeed, the fact that the particular rigidity which we intend to explore is of a more intangible, but deeply fundamental conceptual nature, in large measure accounts for why the issue of these profoundly important oversights in economic theory are of such an insidious, persistent and debilitating nature.  


To a degree which might otherwise border on comedy, or even farce, were the human implications and consequences not so profound, this noxious but odorless specter may be most visibly on display in the mutually conflicting arguments and/or posturing currently being reflexively engaged in verbally, and in terms of legislative policy proposals between Republicans and Democrats, like ping pong or tennis volleys, back and forth, over and over; generally talking past each other on the issues surrounding tax policy and the closely related issue of stimulus versus fiscal restraint; volleys often having an almost robotic character about them so reflexive and automatic do they seem.  And to add a touch of ironic icing, leadership representatives from both sides love to stand before podiums and claim that the American people have spoken, and that they now stand to speak categorically on behalf of the American people, when everyone knows that the reality of what the American people are saying may be vastly more uncertain and ambiguous than these often amusingly self-serving pronouncements proclaim.  


But in spite of the virtually automatonic character of these polemical volleys on economic policy, the all-too-human players are each so wedded to the perceived righteousness of their own positions – often with a nearly theological fervor and conviction – that they apparently never even think to consider standing back far enough from the short-sighted, self-serving imperatives of the politics to recognize this specter of oversight, and that it is hiding not merely in plain sight but, ironically, actually hiding in the very mutual exclusivity of their respective positions on these issues.  Yet very much hiding in plain sight – or at least between the obfuscating smoke and heat of the cloud of righteous conservative/liberal, left/right political rhetoric – are a series of crucial tacit econo-theoretic presumptions which remain both unrecognized and certainly unquestioned by the participants in these volleys.  And it is worth noting as an aside, that so fundamental are these presumptions that they constitute perhaps the most defining, if often only implicit, points of separation in the entire core econo-social platforms of our (largely) two-party political system; with implications of massive historical importance, and perhaps political (and other) revolutionary implications into the future if these were finally a.) merely recognized and b.) actually questioned or even determined as unsound.  So what are these presumptions and oversights? 


In answering this, it may first be worth also noting or suggesting that it is precisely the very property of political mutual exclusivity between the respective positions on tax policy and/or stimulus vs. fiscal restraint which reinforces and maintains the rhetorical churn, and this very churn which then sustains the political oversight of these dubious underlying presumptions.  In other words, by choosing to cast the terms of debate in a manner which makes the choice seem as if it is one that can only ever be defined and conceived as being of an either/or character between their respective positions, a self-reinforcing treadmill is set in motion which not only leaves the possibility that this mutual exclusivity is fallacious beyond the pale even of consideration, but which completely fails to consider the possibility that there may not merely be an alternative, but a profoundly important one which would dissolve this either/or stasis and the mutual exclusivity associated with it in a manner which could constructively turn our economy loose in ways having the potential to fulfill the ostensible objectives of both existing parties to an extent perhaps beyond the highest hopes of either.  But the fact that the existing and historic cyclical pattern just noted has politically repeated itself virtually since the inception of the Republic is testament to both how psychologically and politically self-reinforcing oversight can become, is testament to the significance of the historical implications, and is also something of an inadvertent metric for how difficult getting beyond this oversight seems to be.     


That said, the initial paradigmatic economic oversight which all this political churn keeps the participants, their respective academic boosters, and the partisans of the engaged public electorate oblivious to is embodied in the underlying tacit presumption that we are systemically completely dependent for investment resources to grow the economy, on only accumulations of existing savings, and that there is, effectively, a zero-sum competition between these and the aggregate demand imperative of consumption necessary to support what the economy is capable of producing.  And very broadly speaking, the major political parties define economic platforms and pursue economic policies which align them with the interests of one or the other; the possibility of a deeper resolution for this presumed zero-sum, mutual incompatibility being utterly lost in the virtual sanctification with which the initial presumption is wreathed.  


Outright stating this in such bald terms immediately raises a very tantalizing ‘what if’ question.  It first raises not merely the obvious preliminary question – ‘is this investment dependence on accumulations of past savings really or necessarily true’ – but also the much more potent and expansive policy and political question – ‘how significant might the implications be for breaking this policy (and theoretical) conservative/liberal, Democrat/Republican, either/or logjam impasse which our politicians and their academic advisors are stuck in, if the presumption of this dependence really is not true?’  Another way of formulating the question would be to ask, ‘how threatened would the very identity of our major political parties and politicians be if it were recognized that this core, polarizing factor were misguided and, perhaps, simply mistaken’?  And closely related to this is the question of how many of our governing representatives would have the integrity and political courage necessary to propose and support economic and institutional policies which fundamentally transcend, rather than violating, per se, adherence to what may appropriately be viewed as the historical anachronisms of these existing economic planks in respective party platforms?  Would the fact that it would be unnecessary for either Republicans or Democrats to issue confessions of being “wrong”, per se, in their respective concerns for and devotion to sustaining a vital and dynamic economic environment for businesses and entrepreneurs to operate in for the former case, and that maximizing economic vitality for businesses and entrepreneurs to operate in cannot occur if something resembling economic justice in the distribution of wealth and maintaining a vibrant, growing middle class cannot be treated as incidental afterthoughts in the latter case,  make the transition easier?  Or, rather, would a perceived threat to political identity in spite of this benign, relative political neutrality of the unrecognized alternative overwhelm them and compel a reflexive, comfort-zone recourse to the familiarities of rhetoric and policy in spite of what might be the vastly more beneficial implications for the country of finally relinquishing these political and platform identifications?   


So before more directly delving into the economic oversights, dubious presumptions and alternatives, no, it is not a matter of the Republicans being “wrong” to focus on and emphasize that there are myriad reasons why it is economically and socially caustic, counter-productive and, ultimately, unsustainably self-destructive to impose ever increasing tax and spending burdens on the engines of wealth creation; but nor is it a matter of the Democrats being “wrong” to recognize that the universal benefits of a growing economic pie will only be manifest and real if the wealth created by the economy is distributed (and let me emphasize that I did not say re-distributed) evenly enough to a.) support the aggregate demand necessary to be self-sustaining and favorable to balanced growth, and b.) to maintain a pervasive social sense that justice is not being flagrantly and wildly violated.  Yet, very importantly, both Republicans and Democrats are deeply, profoundly and fundamentally wrong in another way.  It is not merely that they are wrong in failing to learn from history – over and over and over, in fact – by recognizing that anything remotely resembling a wholesale political adoption and implementation of the prescriptions of either side at any given time simply sows the seeds of their own eventual, later reversal - whether in the next election cycle or after a generation of accumulating imbalances endemic to the fact that the strategies of both sides are equally, if differently, remiss - but that this ridiculous and unnecessary social, political and economic dynamic ultimately stems precisely from the fact that this (and several related) tacit, underlying presumptions remains sanctified, in force, and apparently heretically beyond question either academically or politically.


In short, the Democrats (Unions and various other ‘progressive’ entities) are wrong for imagining that their entirely legitimate concerns for economic justice and a reasonably balanced, socially viable distribution of wealth can only or best be achieved by endlessly re-invoking the repeated historic recourse, not to a more deeply fundamental distributional alternative, but to the re-distributional tactics of placing confiscatory taxation or collective bargaining burdens on owners of productive assets, and endlessly expanding an already almost grotesquely bloated Transfer State as a consequence of this adherence.  Conversely, Republicans are wrong to continue living in delusional denial that granting blind, categorical license to “the market” as presently configured – by which is meant a market which structurally virtually guarantees eventually gross imbalances of wealth concentration, absent confiscatory intrusions on the returns to owners of productive assets, by virtue of the underlying rules of the financial  game being configured so that the regime of exclusionary productive asset ownership we currently have is endemic due to the misguided, dual savings/collateralization investment imperatives– will automatically and perfectly resolve any such aggregate distribution concerns via some magical trickle-down equilibration under existing theoretical and financial institutional parameters; parameters which, as noted, virtually assure that a self-reinforcing cycle of endlessly upward concentration of the most productive and remunerative assets into fewer and fewer hands is inevitable as long as the vast (and accelerating) productive advantage of capital over labor continues its’ relentless historic ascendancy, begun systematically and in earnest, with the Industrial Revolution over two hundred years ago.  Over two hundred years ago!        


Before addressing two additional and equally fundamentally important sources of conceptual oversight and tacit underlying presumptions associated with more fully answering the second question (i.e., regarding how significant might the implications be for breaking this policy and theoretical conservative/liberal, Republican/Democratic, either/or economic logjam impasse which our politicians and their academic advisors are stuck in if the presumption of this dependence really is not true) fortunately, attempting to answer the first question regarding the veracity of a presumption that we are systemically dependent for investment on existing savings does not cast us adrift with no conceptual, theoretical or institutional moorings as might be feared.  In fact, a small, little-known think tank – The Center for Economic and Social Justice (CESJ) – has recently done an invaluable service by securing the right to republish an important book dating back to the dark, Great Depression year of 1935 entitled, The Formation of Capital, by Harold Glenn Moulton of The Brookings Institute. 


In reviewing Dr. Moulton’s work from the perspective of the general economic malaise and growing political turbulence of the current post-crisis aftermath, one is inclined to ask how in the world work by such a credible analyst as Dr. Moulton, under the auspices of an Institute as credible as The Brookings, and work of such clearly fundamental analytic and prescriptive importance could have remained so lost to the most serious level of policy and political consideration for so long.  And while this is an important question in its’ own rite, and one the answers to which might be highly illuminating on various levels, including the political, there may be a more important question to ask in the context of the recently often stated truism that it is a canard to imagine that politicians lead rather than follow the electorate.


One of the most frequent questions or observations heard from the chattering classes in print and on TV news and analysis programs since the inception of the most recent financial crisis, is the often half-uneasy wonderment with why ‘the masses’ haven’t taken to the streets with bats, pitchforks and machetes in a mood of storm-the-Bastille outrage and determination.  While some might assign at least a tempered fulfillment of this vision to the recent emergence of The Tea Party, and the electoral bloodbath anticipated for the Democrats in the 2010 midterm election – as I write this passage it is the day before election day – the fact that switching back to the equally misguided and incomplete prescriptions of the Republicans only invites a different, but all too familiar flavor of disappointment when reversion to their policies yet again fail to lead to real and lasting resolution of economic problems, it also gives to precisely this prospect further reason for inevitable frustration and outrage a faintly Keystone Cops, tragic-comic taint when anticipating yet another yoyo reversal come the 2012 elections.  What is interesting and, perhaps, historically significant about such quick reversals is that they effectively simply telescope to much shorter cycles the reversals between these policy poles which have taken place throughout our history; the key difference being that their occurrence is usually on a decadal or generational time scale.  The underlying reason is unchanged: as I noted, the provisional prescriptive and legislative dominance of the econo-theoretic biases of either party with respect to this investment-production vs. consumption schism simply lays the foundation for its own eventual reversal both because not merely do the efforts at resolution of each party essentially and primarily address only one half of that equation, but also because each remains oblivious to these deeper oversights about how to actually resolve the economic problems associated with that schism at a much more fundamental and lasting level. 


So, if the electorate is ultimately to lead the politicians, the electorate itself must first broadly recognize that they delude themselves if they believe that throwing one or the other group of “the bums” out of office will lead to decisive resolutions to this fundamental problem.  Contrary to the campaign-ad claim of California Senatorial candidate, Carly Fiorina, changing Washington is not simply a matter of sending different people to the Capital.  Rather, changing the results that come out of Washington – or the lack thereof – is a matter of what policy logic informs the legislative and prescriptive orientations of whoever goes to the Capital.  But you can change faces until the cows come home with no substantial effect absent substantive difference in such logic.  Second, not only must the electorate become aware that there is a real alternative to the mutually conflicting and collectively incomplete prescriptions of conventional Republican/Democratic economics, it is interesting to consider how unnecessary bats, pitchforks and machetes in the streets would be if they finally came to realize that the real policy alternative gives them an electoral option other than endlessly yo-yoing between the equally incomplete, ineffectual and ultimately counter-productive economic policies of both Republicans and Democrats.  Rather, they would finally be empowered to calmly but firmly advise their representatives that, whatever partisan label they chose to attach to themselves due to allegiance to other planks of a party policy platform pertaining to social, foreign policy, environmental or other issues, they will lose the collective ‘my’ vote if they fail to support economic policies which bind the fundamental production/ consumption schism associated with this flawed tacit presumption that we are systemically utterly dependent for our investment needs on accumulations of past savings. 


Will this prove too esoteric to gain the kind of broad public recognition and support necessary to become a ‘mass movement’?  Conceptually, the idea, theoretical founding and institutional modifications necessary to bind this schism have the Occam’s Razor virtue of simplicity, so this certainly argues favorably that any engaged layperson of average education and intelligence would have no problem grasping why this is important, why it is imminently doable, and why it holds such powerful potential – over time - to unleash the American and global economies.  Further, the fact that we now live in the Internet age, and dissemination of knowledge can be achieved at virtually light speed, would seem hopeful as well, but here there are countervailing problems which arise; time and attention constraints, short-sighted interest group fractionations, often related to the reflexive followers of one loud-mouthed, messianic media pundit or another, etc. may all work in the other direction of keeping the electorate Balkanized.  But at this point we’ve gotten a bit too far ahead of ourselves.  Before expanding on the imperative of the electorate leading our representatives, we first need to return to Dr. Moulton and expand on the nature and significance of this deeper, but stealthy systemic disconnect.




Perhaps nowhere in Dr. Moulton’s wonderfully lucid book, Formation of Capital, is the core issue more simply and clearly stated than in the following passage from Chapter III, under the sub-heading, The Nature of the Dilemma:


“The dilemma may be summarily stated as follows: in order to accumulate money savings, we must decrease our expenditures for consumption; but in order to expand capital goods profitably (emphasis in original), we must increase our expenditures for consumption.”


Though there is further conceptual and prescriptive unpacking ahead, already in this beautifully clear and concise passage by Dr. Moulton, one thing is blatantly obvious.  If you have a political system comprised almost exclusively of two parties whose core economic philosophies and prescriptive legislative orientations effectively embody and reinforce in policy – even if inadvertently - this deep underlying flaw and schism in the economic system, this leaves us in the tragic-comically ironic situation of having a virtual prescription not for stable, long-lasting resolution of economic problems, but rather for precisely the kind of endless generational or election-cycle yo-yoing between inherently incomplete partisan efforts which may be hyped in convention rally balloon cascades as “fundamental” solutions, but which are really nothing more than provisional palliatives for the cumulative and inevitable imbalances of either party’s policies precisely because this much more fundamental underlying structural defect and schism has been left uncorrected.  And because the imbalances resulting from giving too much license to the policies of either side are virtually inevitable, once they appear, the opposing party can always present itself to a more or less concerned, desperate or outraged electorate as having ‘the solution’ when, in reality, it is ultimately only going to manifest the set of imbalances associated with attending to only its’ half of this very same schism.  Further, observing this should not be construed as suggesting that there is some politically viable and operationally perfect balance between the existing policies of the ‘left’ and ‘right’ which would constitute genuine resolution and save the day.  Not only does this politically call to mind the old adage about never being able to stomach eating sausage again once you’ve witnessed the horrors of what goes on inside a slaughterhouse and how sausage is actually made, but it ignores the economic issue of systemic functional optimality suggested by another passage from The Formation of Capital.  Though it is only a prelude to further unpacking the particular relevance of Dr. Moulton’s work to addressing the initial tacit presumption which we’ve framed – i.e., the presumption of an inherent, unavoidable, irreducible systemic dependence on existing accumulations of past savings for purposes of our aggregate investment needs – and others related to it, he apparently considered it of such a high level of importance that he chose for this passage to appear already on the very first page of this apparently forgotten work:


“The study is concerned with something deeper than the causes of business depressions.  The economic system, for some reason, never succeeds in operating at full capacity.  It has been observed that even in periods of prosperity we have some unutilized plant and equipment and a considerable volume of unemployment.  This situation not unnaturally suggests that there must be some basic maladjustment which seriously impedes the operation of the economic machine by means of which the material wants of society are supplied.”  


Indeed, in the context of all the recent attention given to the importance of how, after the fact of the near implosion of our entire financial and economic system, to restructure institutions and regulations so that it will be possible to “unwind” situations which arise when “systemically critical” firms (i.e., firms “too big to fail” like AIG and others in the recent crisis) get into trouble in the future, and given the fact that this much deeper structural flaw at the very core of our economic system has now been exposed and on the table for fully SEVENTY FIVE YEARS, what is the rationale for continuing to ignore the systemic risks attendant to leaving this glaring, if underlying, oversight uncorrected?  And merely raising this only quasi-rhetorical question returns us to the question of whether this deeper schism is simply something which we’re stuck living with, and about which nothing can be done - as if it were the analog in economic science of the fundamental constants of physics like electron charge or the fine structure constant (the latter of which, interestingly, may not be quite so constant as long thought if some recent work turns out to be correct) – or whether, as Dr. Moulton and others since him have so strongly argued, we are not at all stuck with it.  In due course, we will strive to more fully illuminate why we are, in fact, not ‘stuck with it’.  Why, exactly, this passage is so suggestive and significant to our fuller purposes will become increasingly evident as we proceed but, for now, let us briefly expand our commentary about the prior excerpt regarding the nature of the underlying dilemma.


Already in this nearly eighty year old passage, we hear the shades and echoes of both familiar and familiarly polarized and polarizing rhetoric and political debate over issues of taxation and fiscal restraint or spending; all of which are amply manifest right up to the latest moment of our present 24/7 news cycle environment; a theme we will return to momentarily.


Although it is true that Dr. Moulton then goes on to explain how the nature and structure of a capitalist/market banking system leverages its’ loan and credit/currency-generating capability to diffuse, or apparently diffuse, this savings/consumption schism – at least during times of normal economic operation – the ultimate conclusions which he reaches are that the dilemma of this underlying maladjustment remain unresolved in spite of this apparent resolution; which in turn, bears importantly on this first passage cited above, and why it would be so important if such a dependence were not actually correct.  And this remains as true today as it was in 1935; and largely for the same reasons.  A few additional passages will move us closer to his conclusions.  One which should have a strikingly contemporary ring to it – especially so in light of the perennial Republican fixation on tax cuts for the already wealthy under the rationale that these will automatically be invested for productive purposes and, therefore, immediately help lift the economy from its doldrums; an argument which, along with the equally perennial call for severe fiscal restraint, former UK Prime Minister, Gordon Brown, rightly observes in his new book, Beyond the Crash, virtually mirrors the logic invoked by conservatives even during the worst depths of The Great Depression - is the following excerpt from the very next page. Dr. Moulton observes:


“It has been generally assumed  that the amount of new capital goods created will always be roughly equal to the aggregate volume of money set aside as savings by individuals and corporations.  In other words, it has been thought that pecuniary savings are automatically transformed in due course into capital equipment – that, for example, if 10 billion dollars in money be saved new capital will shortly be created having a value of 10 billion dollars . . . We shall, however, show in the course of our analysis that such a general conclusion is quite unwarranted, that money savings may at times be greatly in excess of the new capital actually being created . . . “ (Emphasis added.)


In this context it may be worth expanding a bit on just how contemporary this issue remains to this very day by noting how surprising it was to hear President Obama recently express such apparent surprise after encountering the utterly intractable level of Republican intransigence over their determination to maintain maximal tax-cut benefit to the upper echelons of the wealth distribution spectrum.  Precisely such a stance – one which unreflectively believes, on principle of exactly the fallacious assumption addressed in this passage by Dr. Moulton, that we must grant every possible measure for the wealthy to maintain their wealth because we depend on their savings to provide the means upon which we are systemically dependent for the investment upon which, in turn, all economic growth and employment depends – has characterized Republican economic logic for at least a century, and perhaps much longer.  This is one of the reasons why it was so extraordinary for a Republican President, Theodore Roosevelt, over a century ago, to pursue Trust Busting and similar egalitarian policies; why, a generation later, President Franklin Roosevelt aroused such ire and class hatred by the elites of his time as a ‘traitor’ to his privileged-class roots. 


But while this should surprise no one, it should be deeply disturbing to everyone even remotely paying attention that a.) such a ‘damn-the-facts’ and ‘don’t-bother-me-with-logic’ stance should prove politically enduring generation after generation in spite of having been debunked nearly eighty years ago, and b.) that, generation after generation, neither the Republican faithful nor the electorate ever learns; in spite of work as important as Dr. Moulton’s which illuminates that, however much savings we allow the wealthy to pile up, and contrary to Republican logic, its’ mere availability does not assure that it will be either immediately or profitably invested if there is insufficient demand in the wider system to warrant doing so.  In further fact, and even adding a measure of irony and near comic-relief to the case, are the comments by a leading Corporate CEO after a close mid-December meeting with President Obama as part of an Administration effort to shore up rather tattered public relations, however ill-founded, with the business community.  During a televised interview on the PBS program, Nightly Business Report, on the day of these meetings, when asked point-blank what it was going to take to get corporations to loosen the strings on the mountains of cash they were sitting on and actually begin investing, Honeywell CEO, David M. Cote, responded with wording which might have come right from the pages of Dr. Moulton’s, book.  To synopsize and in a word, his answer was to the effect that they were waiting for … demand.     


In a later chapter, Dr. Moulton tangentially then makes good on his promise to illuminate how unwarranted this flawed investment assumption is in a manner which links back to the theme of capacity underutilization, and elsewhere provides details for how and why it can be that the savings/consumption schism can obtain even in boom times when the level of savings available for investment may be vastly greater than what is actually put to use for productive purposes (as opposed to speculative or similarly non-productive purposes); a topic which should also have a ring of striking contemporary familiarity.  As he goes on to note:


“The truth of the matter is that at the peak of the boom period in 1929 the amount of unutilized capacity in raw material and manufacturing industries was slightly greater and in the transportation field very much greater than it had been five years earlier.  The creation of new capital served to perpetuate the excess capital constructed, but efficiency expanded as the new units replaced old and obsolescent plant and equipment.”


While there is little doubt that Dr. Moulton’s illumination of the fact that the vast majority of new productive-capital expansion occurs not during periods of contracting consumption (and therefore ostensibly periods with greater availability of savings for investment purposes), but during periods of growing consumption, was and remains a dimension of his conclusions of fundamental importance and obviously of great contemporary relevance, there are other aspects of his conclusions which may be considerably more important for our larger purposes.   


He makes a profoundly important observation in the closing phrase of the following excerpt - almost in passing, as it were - while primarily seeking merely to explain why earlier generations of economists had missed his insights due to the focus of their attention being primarily oriented toward the saver’s anticipation of interest payments being the motivation of individuals electing to save rather than consume.


“If one is to deny himself consumptive pleasures at the moment, he must be reasonably assured of larger satisfactions in the future – satisfactions made possible by the productivity of the capital goods resulting from saving.”  (Emphasis added.)


The emphasis is added not merely because such explicit acknowledgement that it is the more productive capital ideally created from the investment of savings which is the primary factor accounting for the wealth-generation supporting payment of interest is rare in economic literature – notwithstanding how commonsensical it might otherwise and justifiably seem to an interested lay person – but also because this acknowledgement opens the door for appreciating the fuller implications of the following conclusion excerpts, and how these may be tied together in service of our broader objectives of illuminating that there is a profoundly important, potentially extremely powerful, but untapped and generally overlooked alternative to conventional Republican/Democratic, conservative/liberal economic prescriptions available to us. 


On page 137:

“In a period of rapid economic growth, like the twenties, the volume of funds rendered available for investment increases much more rapidly than the volume moving through consumptive channels.  This is due to two factors: First, as the money incomes of individuals increase a larger proportion is set aside as savings, particularly by those in the higher earning groups whose incomes are greatly expanded as a result of increasing profits.  Second, commercial banks make extensive loans and investments for fixed capital purposes.  At the same time, there is an increase in the direct savings of corporations in the form of surplus.  Thus, while the flow of funds into consumptive channels increases, the expansion of funds in capital markets is much more rapid.”


On page 154:

“The unequal distribution of income among the various classes of society tends to promote a more rapid increase of savings than of consumptive expenditures.  But the expanding rate of flow into investment channels does not correspondingly accelerate the growth of productive capital.  On the contrary, it tends to restrict the rate of capital formation as compared with what it might be were a larger proportion disbursed for consumption purposes.” 


On pages 158 & 159:

“The conclusions which we have reached with reference to the dependence of the growth of capital upon the concurrent expansion of consumptive demand have an important bearing upon the relationship of the distribution of the national income to economic progress.  If, in consequence of wide variations in the distribution of income, the proportion of the national income that is saved expands rapidly, there results a maladjustment which retards rather than promotes the expansion of capital.

            “The rapid growth of savings as compared with consumption in the decade of the twenties resulted in a supply of investment money quite out of proportion to the volume of securities being floated for purposes of expanding plant and equipment, while at the same time the flow of funds through consumptive channels was inadequate to absorb – at the prices at which goods were offered for sale – the potential output of our existing productive capacity.  The excess savings which entered the investment market served to inflate the prices of securities and to produce financial instability.  A larger relative flow of funds through consumptive channels would have led not only to a larger utilization of existing productive capacity, but also to a more rapid growth of plant and equipment. 

            “The phenomenon of an excessive supply of funds in the investment markets had never been anticipated.  Not only had it been assumed that all savings would automatically be transformed into capital equipment, but it seemed impossible to conceive of a situation in which savings might become redundant.”


And finally, the closing sentences of the “Conclusions” chapter, page 160:


“At the present stage in the economic evolution of the United States, the problem of balance between consumption and saving is thus essentially different from what it was in earlier times.  Instead of a scarcity of funds for the needs of business enterprise, there tends to be an excessive supply of available investment money, which is productive not of new capital goods but of financial maladjustments.  The primary need at this stage in our economic history is a larger flow of funds through consumptive channels rather than more abundant savings.”  (Emphasis added to all cited passages.)


Before striving to tie these passages back to the previous citation pertaining to the important, if understated, acknowledgement that it is primarily the factor of increasing “capital productivity” which justifies the saver’s anticipation of interest income from their savings, a couple of clarifying comments about these striking concluding passages may be in order.


If it seems surprising or incompatible with our inferential intentions to some readers that these selections from The Formation of Capital would be chosen as exemplars of particular relevance to our current circumstances because of an apparent inconsistency with the often reported dearth in our current individual savings rates, it is important to reiterate with emphasis that Dr. Moulton is speaking in the broader context which includes a.) corporate profit/surplus savings and b.) the fact that extreme upward concentrations of wealth sustain the relative imbalance between savings and productive investment (as opposed to speculative and other “financial maladjustments” use), precisely because of the fact that the vast majority of income at these levels of rarified wealth are not required for consumption by their holders and, therefore, effectively become what Dr. Moulton refers to as “redundant” when rendered available for investment in the manifest form of savings; i.e., they do not provide consumptive support for the expansion of investments in additional productive capital because systemic consumptive demand is insufficient to justify the anticipation that making such investments would prove profitable, which obtains, in turn, precisely because of this level of wealth concentration; in effect, a classic negative feedback loop.  Since levels of both corporate profits/surplus and upward concentrations of wealth are currently at, near or actually above historic extremes – perhaps beyond even their status prior to the 1929 crash with respect to wealth disparities - the case for considering these excerpts as highly germane to our present circumstances would seem to actually be strongly supported in spite of apparent circumstantial differences.  And there is another important and generally overlooked point to make here.


The scrambling bail-out urgency which ensues from crises such as 2008 ultimately devolves back to this tacit presumption that we are systemically so utterly dependent on such stores of past/accumulated savings for investments in productive capital expansion – if and when a context of resurgent demand might again render them profitably viable - that we had better legally, institutionally and politically do anything and everything necessary to ‘reflate’ the advantages of those individuals and institutions holding these stores of accumulated savings at the risk of fatal systemic implosion for not doing so.  In other words, we are effectively seeking to minimize ‘systemic risk’ by making an implicit part of our very social contract the support for the very distributional imbalances and concentrations of wealth which constitute one of the key factors elevating systemic risk to begin with.  And lest prepared to seek cover for transgressions against political correctness for seeming to invoke “class warfare” by making this observation, let no one even consider stating the obvious for anticipatory fear of such rhetorical tar-and-feathering; as if it weren’t already an advanced state of class warfare to have 90% or so of a nation’s population left with so paltry a stake in the overall ownership of an economy’s productive assets that it contributes little, if any, to their consumptive resources.  And compounding this already rich irony is the fact that we then completely fail to consider whether this systemic dependence on accumulated/past savings is really sound to begin with; we fail to consider the undemocratic nature and inherent injustice of a social contract – implicit or otherwise - which essentially sanctifies as systemically necessary in financial and economic law and policy, arbitrary partitions of demographically relatively narrow but extreme personal advantage, assigned nearly unconditional economic protection, versus demographically vast and pervasive disadvantage and economic vulnerability; further, we fail to connect the dots between Dr. Moulton’s emphasis in these crucial concluding passages about the critical importance of “wide variations in the distribution of income” to the issues of both the viability of productive investment and systemic balance (or imbalance), to his important comment about “capital productivity”; and then, ultimately, we fail to see how and why these dots might be connected in a manner which would both belie the presumption of a systemic investment dependence on accumulated/past savings, and allow us to either completely transcend or drastically mitigate our vulnerability to the eventual crises which this presumption and its’ attendant financial and institutional operational mechanisms contribute to, if not virtually assure.  But, again, these observations place us a bit ahead of ourselves and beg an answer to the question of how these dots do or might connect.


Though immediately now moving on to provide explicit connection of these dots would seem the clear, natural and logical next step, there is every reason to suspect that any reasonably astute reader may already have at least begun to do so themselves.  As such, before explicitly proceeding to do so, since we ultimately want to link all of this back to the polity and associated political issues, perhaps the best way to move forward then is to again proceed with a question. 


If, as Dr. Moulton so importantly illuminated seventy five years ago, the linchpin in the whole self-reinforcing nature of this maladjustment is this endogenous upward concentration of wealth, and the primary driver accounting for the generation of new wealth stemming from investment in productive assets lies with the inexorably increasing “capital productivity” of technology manifest via instantiation in new productive capital instruments, then the question naturally arises, why in the world have we chosen to structure financial and economic rules for our system in a manner which concentrates rather than universally democratizes the ownership of such instruments and, thus, dramatically mitigate, if not wholly free ourselves of this troublesome, underlying and inevitably recurring  malady?  The answer to this question unfortunately leads us to a whole cluster of other related and interlinked tacit assumptions of no less significance than the one we opened with; the first, and perhaps most insidious of which – precisely because it is so reflexively engrained – is the unfortunate, self-defeating assumption that the only viable economic and social mechanism for the mass distribution of wealth is the single factor of labor; i.e., wages.


But before moving on to this very important theme and exploring what the alternate institutional forms allowing us to amend this singular distribution mechanism might be, let us first close the circle with respect to how these insights illuminate an alternative to the dependence on accumulated savings for investments purposes, and thus why the initial tacit presumption of such a dependence is mistaken to begin with.


If the average citizen were asked to consider how the capital-investment needs of even the several thousand most successful and well run major corporations at the summit of our economy are satisfied, it would probably be safe to guess that it would be their belief that the answer is that these needs are satisfied from accumulated savings.  In reality, this is a mistaken belief.  For those familiar with even the basics of conventional corporate finance, it would be trivial to acknowledge that such corporations currently do and have long routinely replaced, expanded and grown their productive capital assets not based on recourse to accumulations of past savings, per se, but on the basis of the extension of credit supported by the future earnings anticipated for the very new capital instruments they intend to create; in effect, the new capital instruments are self-funding out of future earnings.  In our present context, while there are multiple reasons why this reality is so important, initially, it allows us to revisit the concept of savings; it allows us to broaden our understanding of savings from one embodied and manifest exclusively in the form of past accumulations stemming from deferred, present consumption, to one which also includes the seemingly counter-intuitive idea of “future savings”. 


For those unfamiliar with it – and tragically, this may not only include the vast majority of our tax and legislative policy makers and/or their economic advisors - that this is a fact may initially come as revelatory, rather magical and quite exciting.  But appropriate as that initial excitement might be if only it were implemented to its full potential social and economic advantage, it is unfortunately also likely to be quickly deflated in the average citizen when coupled with realizing the additional fact that this important mechanism is presently essentially limited in benefit to those already well-capitalized; i.e., those already holding significant ownership in productive assets; the already wealthy, ‘the haves’.  And the present exclusionary nature of capital-acquisition participation, and the attendant, but presently unfulfilled wealth-distribution capabilities and benefits of universalizing such participation, has everything to do with why it is that the consumption/savings schism with which we started persists to this very day, even though Dr. Moulton’s analysis revealed that, in principle, the normal operations of a market-based credit and currency-generating banking system should diffuse this problem.  Why does the resolution of this schism, which should happen in principle, fail to happen in reality?  This is where we can begin in earnest to pick apart the cluster of tacit self-reinforcing assumptions, and also connecting the many scattered dots previously alluded to. 




The immediate dot-connection linkage implicit here is between Dr. Moulton’s closing emphasis on the importance of extreme imbalances in wealth concentrations, and his earlier emphasis on the key wealth-generating power of the technologically relentless enhancements to “capital productivity”.  If such enhancements are a key driver of wealth generation - even if not categorically the key driver which, in reality, they ultimately may well be for reasons which we’ll leave for another time – and we have structured our financial system in such a manner as to reinforce that ownership-access to such assets is almost entirely constrained to those who already have such ownership – which is certainly and demonstrably the case - then, clearly, ah, “Houston, we have a problem here”.  And, again, it is a problem with inherent systemic risk implications - which are being and have long been either overlooked or improperly understood – precisely because they endogenously ‘bake in’ to the system at its’ very operational core a dual, but mutually conflicting set of automatic feedback loops.  For the already wealthy, it is a positive feedback loop, allowing them to incessantly increase their accumulations of wealth; for the overall system, precisely because access to such ownership is so exclusionary in the aggregate, the automatic feedback loop is negative because, as Dr. Moulton’s work so importantly reveals, these very accumulations induce an increasing maladjustment between incentives to invest further in additional productive capital or employment, and the broader systemic consumptive demand needed to justify those further investments.  So, why does a problem so blatantly hiding-in-plain-sight as important and fundamental as this remain overlooked or improperly understood for so long?  As might be anticipated, the reasons are multiple and layered, academic and political.  And on the political level, a brief aside may be appropriate at this point.


While we have previously directed some fairly scathing indictments at core Republican tenets of economic logic, in doing so, there is no intention of partisan bias in favor of conventional Democratic Keynesian, tax/spend/deficit economic logic; though, however misguided their alternatives may be, it must also at least be conceded that there is a historically well-founded motive of egalitarian concern inherent in them because of the extremes of potentially mass social and economic privation which historically have, and might again ensue in the absence of some counter-measure to a system run on purely Republican trickle-down tenets of virtually categorical and blind support of accumulations of wealth. 


But whatever the legitimate historic roots in circumstances of politically untenable mass privation, and however well intentioned and egalitarian traditional and present motivations of the Democratic economic reliance on Keynesian strategies, predicated on the fabrication of government debt, and re-distributionist tax strategies to try to address the systemic problem of insufficient aggregate demand arising from the relentless upward concentration of wealth resulting from Republican strategies may be, these are administratively hideously cumbersome and economically wildly inefficient palliatives by comparison to an alternative based on the kind of more ‘binary’ logic which we’re invoking, and this reliance has disadvantages no less narrow, myopic and self-defeating than the misguided Republican approach. 


Aside from whatever its’ non-trivial intermediate and long term inflationary implications tend to be, aside from its’ potential to have ‘crowding out’ effects on private-sector investments, in a system predicated on the fallacious assumption that we are dependent on accumulations of past savings for these needs, and thus muting more unfettered growth even in good times such as our current system does, perhaps its’ most insidious and overlooked disadvantage lies in the fact that this now virtually habitual but politically expedient Keynesian policy reliance blinds policy makers to the following consequences: it decouples monetary creation from what would be the non-inflationary direct creation of a.) productive capital assets, and then b.) broad ownership of those assets based on true free-market principles of universal participation.  Indeed, the entire deficit spending and re-distributionist strategy can be very appropriately viewed as a wildly convoluted attempt to arrive at the legitimately-desired end result of a more balanced and self-sustaining macro-economic aggregate demand profile for the economy which would be largely, if not entirely, unnecessary on market principles except for that misguided decoupling.  In other words, if the self-equilibrating benefits of free markets were truly taken as seriously as the nearly theological rhetoric with which political polemicists often wreath themselves on this subject would suggest, it would be evident that markets structured in such a way as to perpetually reinforce highly exclusionary and concentrated ownership of the most productive assets in the economy hardly qualifies as a truly free market from which we should even expect to achieve maximal efficiency, minimal administrative burden, and the kind of autonomously balanced distribution of wealth – and not re-distribution – capable of maintaining inherently self-sustaining levels of demand without the need for much, if not most, of that deficit spending and/or those confiscatory tax burdens. 


Yet, observing a quite interesting and informative recent Aspen Institute conference on the subject of how to address our presently ballooning budget deficits (see: ) left two overwhelming impressions: 1.) that both the ‘left’ and ‘right’ are so ideologically wedded to their equally incomplete solutions, and yet each also so convinced that their prescriptions would save the day  were it not for the pesky intrusions and delusions of the other side, that they both remain oblivious to the underlying oversights which reinforce the very failure to recognize why both of their prescriptions are mutually flawed, and collectively incomplete and insufficient, regardless of how much supposedly constructive “compromise” is achieved legislatively, and 2.) that the exercise of human ingenuity in exploring the combinatorial range of possible Rube Goldberg measures for how it might be viable to tweak this or that tax or spending mechanism within the existing framework, in an effort to cobble together something allowing us to lumber along and perhaps get back to something like “normal” operations and growth (when so much more than “normal” might be possible), is so nearly infinite that it raises the serious question of just how catastrophic a systemic implosion would have to be before recognition that something deeper was amiss would finally dawn.  And, in this sense, the very fact that there are so many ways to tweak things within the existing framework sustains the illusion – both academic and political - that there is nothing fundamentally amiss with that framework (in spite of demonstrable anomalies like muted capacity utilization even during more ‘robust’ economic conditions), and seems to support justifications for the delusional, self-preservational institutional inclinations to dismiss claims to the contrary as being heretical, if not simply wacky.  Deciding whether the illusion or the delusion is the more dangerous of the two is a difficult judgment call.        


In any case, the de facto Democratic assumption that the correct or even necessary means to deal with the fundamental “maladjustments” which Dr. Moulton addresses is a.) to impose onerous taxation burdens on owners of productive capital assets so as to b.) construct and maintain the inefficient, lumbering, Transfer State apparatus, having expansion tendencies analogous to metastatic disease, and predicated on the logic of re-distribution, mistakenly presumes that re-distribution is the only or necessary counter-measure to Republican policies to begin with precisely because it, too, has failed to recognize the distributional logic of universalizing the ownership of the productive capital assets which work so effectively as a wealth distribution mechanism for the wealthy, thank you very much.  Hence, rather than truly fundamental and lasting resolution to the underlying primary savings/consumption and secondary financial ‘maladjustments’, we are left with the endless and utterly unnecessary cycles of class warfare, vs. tax-and-spend rhetoric and self-reinforcing political battles of respectively incomplete and mutually conflicting ‘conservative/liberal’ proposals, which often ridiculously elevate to the level of putative political virtue compromises which are, in reality, compromises of the already compromised, just to create the illusion that something constructive is being done.  In reality, the failure to resolve the true underlying distributional problem of a perverse and pervasively exclusionary regime of productive capital ownership, means that we’re simply unwittingly planting the seeds of further delayed days of reckoning with new, future outbreaks of one relative crisis or another due to the underlying irresolution; something hardly worthy of the kinds of increasingly embarrassing political self-congratulation so often evidenced in the media and attendant to the scattered cases of political ‘compromise’.  That said, we’ll return to the reasons these oversights have persisted so long and so insistently. 




First, though the concept of productivity might well be placed near the locus of economics 101, the general focus and dominant emphasis of the concept is almost invariably assigned in terms of labor productivity since capital, according to this bias and tacit assumption, must be treated as an ancillary factor which simply enhances the capability of labor; the tacit assumption being that, if capital is only ancillary to labor, breadth of ownership of such assets cannot possibly be treated as equal to labor as a basis for providing a viable mechanism for mass distribution of wealth.  This, and the closely related and equally dubious and problematic assumption of other conventional theories of free-market operation to the effect that it makes no difference to economic growth and systemic stability how broadly owned the productive assets of a market economy are, is one of, if not the most insidious of the assumptions inhibiting the recognition that we have available to us a way forward which completely transcends the hopeless and endlessly inevitable yo-yoing between the mutually negating, incomplete and anachronistic economic prescriptions of Republicans and Democrats.  Though rarely, if ever, acknowledged in formal academic circles, there is another related, but conceptually entirely distinct and very important approach to this issue formulated in the years and decades after Dr. Moulton’s seminal work, which defines the unique concept of ‘productiveness’; a profoundly important concept related to, but completely distinct from the conventional concept of productivity. 


Though we will return to provide more detail about this important concept later, at this juncture in our considerations, the economic point to emphasize is that its’ importance resides in the fact that not only does ‘productiveness’ – as distinct from the almost entirely labor-centric conventionally defined productivity concept - free us from having no choice other than to subscribe to the conventional assumptions about the relative relationship between labor and capital, it acknowledges both as being equally capable of providing a basis for the distribution of wealth; something which one might have thought would be obvious since, as already noted, ownership of productive capital assets has been fulfilling this role quite nicely for the wealthy for centuries now, and ever increasingly so as the power and sophistication of relentlessly advancing science and technology make capital assets ever more productive.  The only real question should be whether there are viable modifications to our legal, financial and economic institutional infrastructure which would provide mechanisms for efficiently enabling the universalizing of this complementary means of distributing wealth pervasively throughout the population.  Indeed there are, and we will return to this in due course as well.  But for now, the key point to emphasize politically is simple, though profound in its’ implications for why there is such a need for the electorate to lead their legislators.


If the academic advisors having the collective ear of our legislators conveniently refuse even to acknowledge that there is such an alternate characterization of economic production and how its’ resulting wealth might be distributed then, clearly, such a possibility will not even see the light of day, let alone receive the policy and legislative consideration which its’ profound importance would otherwise warrant on its’ inherent conceptual merits.  Indeed, there is a kind of grim fascination associated with speculating about whether there is even a single one of our current elected representatives who is cognizant that something other than this protracted and cyclical death dance between equally incomplete and misguided Republican and Democratic policies, something of unsuspected power and promise, even exists.  This is the state of affairs which the citizenry must refuse to continue tolerating, and the more immediate, massive, coordinated and persistent the refusal the better.  


Though it is not the key purpose or intention of this article to tread too far into the technical economic weeds, if the concerned, interested and intelligent lay public is to provide the level of activist force needed to induce a change in direction in our leadership on these issues, some level of at least preliminary grounding in a.) why the distinction between the conventional concept of productivity and the distinct and unique concept of productiveness is so important, and b.) how the latter concept provides a powerful theoretical basis for envisioning and formulating the appropriate, but perhaps surprisingly modest, modifications to our legal, financial and economic infrastructure which would make viable the process of universalizing and truly democratizing - over time and on purely voluntary and free-market principles - the ownership of productive capital assets throughout the population.  This also provides us with an opportunity to introduce some of the heroic and important voices who have so long labored to educate and promote consideration of this historically important transformation.


While the foundational and still-crucial conceptual work dates back now already over fifty years in a series of books beginning initially with, The Capitalist Manifesto, (see: ) by economist and investment banker, Louis Kelso, and philosopher, Mortimer Adler, no one has done more to refine and further elaborate the implications of this important work than Dr. Kelso’s protégé and colleague, Syracuse Professor Robert Ashford.  In both his invaluable and comprehensive 1999 book (with co-author, Rodney Shakespeare), Binary Economics: The New Paradigm, and many related papers (e.g., see: ), Professor Ashford has carried on the important work of seeking to establish broader formal recognition and further research exploration of these ideas within academia and beyond.  At the very least, the two books cited above should be required reading for every citizen interested in either understanding why these ideas are of such profound importance and promise, or in participating in the effort to lead our leaders beyond the partisan morass of individually incomplete and mutually negating Republican and Democratic economic prescriptions.  Since we have already briefly noted the valuable contribution which The Center for Economic and Social Justice has made in securing authorization to renew publication of Dr. Moulton’s seminal 1935 book, The Formation of Capital, it is worth expanding this allusion to note that this particular initiative constitutes the barest tip of the iceberg of the CESJ’s heroic on-going activist and educational efforts.  (See: ). 


In any case, to clarify the simple but powerful distinction between the conventional concept of ‘productivity’, and the unique concept of ‘productiveness’, the following excerpts from Professor Ashford’s paper, Louis Kelso’s Binary Economy (Vol. 25, #1, 1996.  The Journal of Socio-Economics), are unsurpassed:


“Productivity is the ratio of the output of all factors of production, divided by the input of one factor, most usually labor.  In contrast, productiveness may be thought of as total work done by each factor.  In relative terms, it can be expressed as the percentage of total output attributable to the productive input of each independent factor.”  (Emphasis added.)


“To explore the concept of productiveness and its relationship to productivity and growth, assume that in a pre-tool age, a person could dig a hole in four hours by hand.  After the invention of a shovel, she can dig the same hole in one hour.  In traditional economic terms, she has four times the productivity because she can perform four times as much work in the same time period.  In binary economic terms, the productiveness has changed from 100% labor before the invention of the shovel, to 25% labor and 75% capital after the employment of the shovel.  In terms of producing the hole, the worker contributes only one-fourth as much productive input, so her labor productiveness per hole has been reduced to only one-fourth of its former value.  Seventy-five percent of the worker’s former productiveness has been replaced by an equal amount of capital productiveness.  Therefore, in this example, although capital may increase human productivity, more significantly, in binary terms, it replaces labor productiveness per unit of output.”  (Emphasis in the original.)


A major part of the importance of the final passage, and the reason the original was placed in emphasis, is because it allows us not merely to uniquely define ‘productiveness’ as distinct from ‘productivity’ conceptually, but also because the effect of concentrating higher productivity into fewer labor hands per unit of output, allows for substantiating the additional idea that capital, generically, may be said to be independently productive even though any given capital instrument may require some human/labor participation in fulfilling its’ production function.  But it is also important to emphasize that the productiveness concept is not formulated with the inverse bias to that which generally obtains with respect to productivity; i.e., that labor is ancillary to or a variable dependent to capital.  They are simply regarded as what they are: i.e., equally viable, independently productive co-factors, hence the term binary; binary logic, binary economy, binary institutions, etc. 


In turn, it is precisely this capital property of productive independence which is the major conceptual ‘missing link’, as it were, underlying the gross oversight in existing economic theories regarding why and how breadth of productive capital asset ownership provides a mechanism and basis for the distribution of wealth beyond simply that provided by labor, per se.  In other words, if an existing capital instrument is replaced with a technologically enhanced version exhibiting a greater contribution to fulfilling the given production function, per unit of output, it may be said that the relative independence of its’ productiveness has been commensurately elevated; the extreme case obviously being one where no human/labor is involved at all, such as the increasingly commonplace case of completely autonomous robotic product assembly or completely automated, Artificial Intelligence-driven financial analysis and trading operations (see January, 2011 issue of WIRED magazine). 


This may be an appropriate juncture to pause and comment on the recent book by former Clinton Administration Labor Secretary, and current U.C. Berkeley Professor, Robert Reich: Aftershock: The Next Economy and America’s Future.  Having long been an admirer of Professor Reich, it is a pleasure to acknowledge that he is one of the very few prominent analysts to so boldly reaffirm the profound aggregate-demand implications of severe imbalances in the distribution of wealth which Dr. Moulton pointed out so long ago.  In doing so, he also courageously and very appropriately shares the emphasis I’ve been voicing here that academics, policy makers and the public have grossly failed to learn this ‘second lesson’ of the Great Depression; which, as he also points out was corroborated as a defining issue even during that prior crisis by a contemporary of Dr. Moulton, and former Fed Chairman under Franklin Roosevelt, Mariner Eccles.  And though I could not agree more with his very general conclusion that properly learning this “second lesson” entails restructuring the economy in a manner such that these imbalances are corrected, there are very good reasons not to subscribe (at least wholly and over the long term) to the fundamentally Keynesian orientation of the prescriptions which Professor Reich offers; prescriptions which bring to mind a distinction between diffusing or patching the problem through these Keynesian methods, rather than resolving it at a level compliant with truly fundamental market principles.  During a recent U.C. Berkeley faculty dinner presentation – see: - which showed Professor Reich’s characteristic erudition, decency, good humor and insight, he made several points which may help further flesh out the distinction between Keynesian patching/diffusing and a more fundamental resolution on real market principles. 


Though Professor Reich voiced a denial that his prescriptions are re-distributionist in nature, the bases on which he did so don’t really wash; especially in view of the level of tax increases he is espousing.  First, the core denial is that his prescriptions aren’t “really” re-distributionist because the end result of more evenly spreading the wealth by invoking the proposed confiscatory tax levels – i.e., re-distribution – means that an economic environment with the associated increase in aggregate demand resulting from such tax and re-distribution prescriptions will mean a larger pie, and thus a win-win for both the wealthy and the rest of us.  The fact that such a program might, indeed, result in a win-win scenario obviously doesn’t preclude it from also “really” being re-distributionist.  Aside from the fact that such prescriptions do absolutely nothing to address (let alone fundamentally resolve) the underlying consumption/savings schism at the core of Dr. Moulton’s seminal critique, by invoking and leaving us entirely within the conventional realm of what amounts to reliance on a marginality-based growth model, it fails to recognize that the proposed binary growth resulting from universalizing productive asset ownership is completely distinct from and a more potent complement to such growth; in other words, it amounts to settling for far less than what may truly be available to us. 


Second, this approach begs a simple question: why is it that it so easily comes to mind to impose confiscatory tax levels on the demographically small elite of productive asset owners for such ‘restructuring’ purposes, but the idea that the fundamentally more appropriate market-based remedy of a.) recognizing that the assumption of a categorical systemic dependence on accumulations of past savings (primarily of the wealthy) to provide for our investment needs is mistaken, and b.) undoing the systemic constraints which reinforce the highly exclusionary profile of our productive-asset-ownership regime, and which is what underlies the ‘baked in’ feedback loop which leads to these highly skewed and concentrated wealth distributions to begin with, is somehow simply beyond the pale of serious policy consideration, if not civilized thought?  And even this completely ignores that there is a huge, and largely unnecessary, cost imposed in such redistribution schemes related to having to filter these confiscatory receipts through the arcane, Byzantine and wildly inefficient tax system which so often typifies all of the Rube Goldberg incentive bells and whistles with which they’re generally so burdened. 


Third, the Professor’s preferred and expressed emphasis on the idea that we can, or should even try, to socially and economically continue propping up a systemically virtually utter reliance on labor as our sole mechanism for the distribution of wealth through more pervasive attainment of education suffers from a number of problems.  In his effort to debunk the idea that getting back to actually “making things” was viable, I couldn’t help but feeling somewhat bemused by his invoking a recent visit to an American manufacturing facility as an example for why this couldn’t possibly suffice.  Because the actual production of the “things” being made there was, he noted, almost entirely robotically automated, with just a few people ministering to the automated systems, the claim is that there just aren’t enough jobs to be had from getting back to “making things”.  Aside from what a stunning concession this is on its face, the bemusement from this admission stems from the complete failure which it embodies to recognize a.) the virtually reflexive assumption that “jobs” are the only way to earn income and ignoring that someone owns and is profiting handsomely from those robotically automated systems which are making the things, and b.) that those owners don’t need to be limited to the top 10, 5 or 1% of the population.  While the greater growth probable in a market economy based on binary principles, including the uniquely potent case of the principle of binary growth as distinct from conventional marginal growth, would probably place an even greater premium on education in certain respects, the explicit proposal that propping up a purely labor-based wealth distribution mechanism by training vast millions and millions of people as labor providers in the “value-added” services areas is predicated on the false assumption that the production functions which those services themselves embody are a.) immune to the very process of algorithmic abstraction which leads to the automation of “making things”, and which they are most certainly not immune from (and is the reason I interjected these comments after the reference to the article about the quiet but important progress in Artificial Intelligence reported in WIRED magazine), and b.) this emphasis fails to take account of countervailing factors associated with such forms of service production; i.e., increasingly, these tend to be associated with exponentially proliferating market and product segmentation and differentiation, which already often runs into the brick wall of “the paradox of choice”, and even when this doesn’t happen, it runs into the closely related and increasingly inhibiting issue of time/attention constraints in an economy flooded with options.  In short, whatever level of education may actually be demanded of an even more rapidly growing market economy based on binary principles, the more appropriate general conclusion is to finally realize that it is the presumption that income can only mean “job” which is an anachronism, and not that automation and other factors means that endlessly monetizing education provides a way to sustain our exclusive reliance on labor as being the only ‘out’ for achieving more balanced wealth distribution.  And for anyone who doubts that Artificial Intelligence technology has the potential to increasingly intrude on precisely the kind of higher “value-added” service functions which Professor Reich’s argument tends to so heavily rely on, I can think of no more elegant, powerful or important counter example than the Imagination-Engine/STANNO paradigm (see: ); which is also only just beginning. 


But resuming our prior emphasis, from the perspective of the independent productiveness of capital, maintaining the kind of highly exclusionary regime of productive capital ownership which characterizes every other form of economic organization – historical or extant, including Western “free-market” models - feeds the very underlying systemic instabilities and ‘maladjustments’ which Dr. Moulton illuminated by assuring that the economic benefits of these relentless technologically induced productive enhancements accrue only to that small demographic elite who demonstrably own the Lion’s share of such assets.  Given that the mass, labor-subsistence which we would otherwise be left with is not socially or politically palatable, this, in turn, does and historically has virtually assured political recourse to one flavor of re-distributional tax/transfer scheme or another – whether operationally instantiated and administered on a private sector, ‘collective-bargaining’ basis or governmental Transfer State basis -  precisely because the potential for the direct distributional model of wealth assignment based on this breakthrough insight has been unrecognized, ignored, or intentionally trivialized and marginalized.  When viewed in this way, we immediately recognize the profound historical implications of these myriad dysfunctional existing tacit assumptions embedded in our system, and why their removal and replacement entails the prospect of such profound and promising future potential.


Professor Ashford goes on to elaborate even more fully in many of his publications why these unique insights regarding capital productiveness are so significant by specifying the Six Powers of Capital.  As expressed in his recent paper, Eliminating the Underlying Cause of Poverty as a Means to Global Economic Recovery, these six powers are:


“(1) Replace labor (by doing what was formerly done by labor);

(2) vastly supplement the work of labor by doing much more of the kind of work that humans can do;

(3) do work that labor alone can never do (e.g., people cannot cut a single board without a saw; elevators lift tons hundreds of feet in seconds; airplanes fly; scientific instruments unleash forces that create computer chips that cannot be made by hand; fruit trees make fruit while all farmers can do is assist in the process;

(4) work without labor (as in the case of washing machines, automatic bank tellers, gasoline dispensers, vending machines, automated factories, and fruit bearing trees;

(5) pay for itself out of its future earnings (the basic rule of business investment); and

(6) distribute the income necessary to purchase its output”


Earlier we raised the question of whether there were viable institutional modifications available allowing for the realistic, effective and efficient instantiation of a system which would go beyond merely labor, per se, as an economic and social mechanism for the mass distribution of wealth, to include one based on the truly democratic economic vision of universalizing ownership of such productive capital assets.  Since Professor Ashford’s final two points here provide a natural segue to this issue, a few words on this seem appropriate at this juncture. 


The short answer to this question is, ‘yes’.  The more intermediate answer would indicate not merely that the answer is strongly affirmative, but that these well defined proposals have also existed, and been more or less ignored, for decades.  (This fact might legitimately serve to provide even greater justification for public outrage, and for the public taking to the streets in protest than do myriad factors contributing to the near cataclysm of our current circumstances.)  The details of these relatively modest adaptations of existing legal, financial, monetary and economic institutions may be found in various existing books and papers by the Kelsos, Professor Ashford and on the CESJ website (most notable and thorough would be the books: Democracy and Economic Power: Extending the ESOP Revolution Through Binary Economics, by Louis O. Kelso and Patricia Hetter Kelso (see: ), and Binary Economics: The New Paradigm, by Robert Ashford and Rodney Shakespeare; see: ), and every interested reader would be emphatically encouraged to explore these for the easily grasped details, but for the purposes of this essay what may be more important than delving into those here is a tangential point of emphasis and related questions. 


First of all, how many citizens know anything about any of this; know that a systemic alternative having the potential to empower them as owners of productive capital exists; or how many of our elected representatives know that such a powerful policy alternative exists or would even be open minded about considering it?  Second, there is the enormous underlying issue of Rights.  Though the founding documents of this country explicitly concern themselves primarily with human, religious and political Rights – provisions related to the sanctity of property ownership, except under conditions of Eminent Domain, being an important exception - the relative absence of any formal, Constitutional specification and inclusion of individual economic rights may be somewhat a coincidence of history in the sense that this country remained, at the time of our founding, an almost entirely pre-industrial agrarian society with a seemingly unlimited geographic frontier into which citizens might diffuse, seek to establish land/property title, exert their labor and establish autonomous economic competence and viability.  Not quite a century later, the Homestead Act legislatively more directly embodied this largely common-sense and intuitive, as opposed to formally econo-theoretical logic, but still without any explicit, formal Constitutional specification of economic Rights, per se.  But it may be both appropriate and important at this point to offer a reminder about one of the less heralded Amendments included in the original Bill of Rights; namely, the Ninth Amendment:  “The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.”


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