Financing Economic Growth With “FUTURE SAVINGS” –– Solutions To Protect America From Economic Decline

While conservatives blame poor governance and unions for the fall of Detroit and other American cities, which have filed for bankruptcy, there is another side to the story. The horrific part is that there are many cities that are headed in the exact same direction as Detroit. The entire country could follow Detroit's lead as tectonic shifts in the technologies of production and globalization to produce at the lowest possible cost destroy jobs and devalue the worth of labor.

The United States is headed for more personal and family economic turmoil and social unrest and upheaval due to a faulty economic system that fosters the concentration of wealth-creating, income-generating productive capital––the ownership of non-human productive assets such as land, structures, machines, super-automation, robotics, digital computerized operations, etc. The system is faulty because economic growth is based on individual and family accumulations of savings, with ALL economic growth dependent on past savings "invested" to further concentrate productive capital ownership. This will leave the vast majority, or the so-called 99 percent, who are property-less as related to ownership of productive capital assets, unable to save sufficiently and instead struggling to sustain their livelihood month to month, as they fear for job loss and having to rely on taxpayer-supported government welfare.

To change the rules and reform the system, the outcome of FUTURE policies must be to facilitate financing economic growth with "FUTURE SAVINGS," and simultaneously create new capitalist owners of wealth-creating, income-generating productive capital assets. "FUTURE SAVINGS" are profits used to repay loans for new capital formation and acquisition of existing productive assets by new owners.

Critically, we must recognize that Americans and the world's people do not have to end up desolute and bereft as the FUTURE unfolds due to fundamentally flawed assumptions in modern economics and finance: that new capital formation is impossible without first cutting consumption, saving, then investing. The result has been that the "supply of loanable funds" derived from past savings determines the "production possibilities curve" or rate at which economic growth can be sustained.

If we are to achieve the goal of general affluence for every human being, the first requirement is to increase progressively the total amount of the income to be shared. This requires increased production, not redistribution, in order to generate incomes that would be distributed according to market principles. This is the ONLY means to promote a fuller utilization of our productive facilities and a consequent progressive increase in the aggregate income to be available for distribution, and to which increasing quantities of newly created products and services would become available to everyone.

"Distribution is the trouble" said Dr, Harold G. Moulton, President of Brookings Institution, in his 1935 book The Formation Of Capital. Said Moulton, "The way our income is distributed provides an inadequate purchasing power for our full production."

The problem that needs to be addressed is threefold: 1) how to increase production, 2) how to distribute the income from production according to relative inputs of human labor and non-human productive capital, and 3) how to distribute that income to people who will use the increased income for consumption, not reinvestment (to further concentrate ownership of wealth-creating, income-generating productive capital assets).

In today's economic world, economic progress and the financing of FUTURE growth is subject to a reliance on existing accumulations of savings that result from cutting current consumption. Income, instead of being spent on consumption to keep production and consumption in balance, is diverted into savings. With fewer customers purchasing what is produced, the financing of FUTURE productive capital used to produce new products and services becomes less financially feasible.  

As is noted in the forward to the "new edition" of Moulton's The Formation Of Capital, written by Norman G. Kurland, Michael D. Greaney and Dawn K. Brohawn, my colleagues at the Center for Economic and Social Justice (

“Financial feasibility refers to the ability of new capital investment to pay for itself out of the future earnings of the new capital. This is an application of Adam Smith's observation that the purpose of production is consumption. A standard test to determine whether a company should invest in new capital is whether there is sufficient consumer demand to support the marketable good or service to produced. In other words, why add a new productive asset or tool if no one is going to buy (consume) what it produces? Thus, as Moulton emphasizes in this book, demand for capital is derived from consumer demand.

“Worse, from the standpoint of political and social stability, using past savings to finance growth accelerates, and provides a rationalization for maintaining and even increasing, concentrated ownership of the means of production. It also leads to expanding the role and powers of the State in a desperate effort to stabilize the economy. The rights of private property (i.e., the rights to the fruits of, and control over, what one owners) are taken from individual citizens and transferred to the State.”

The resulting problem is that to the extent that the savings investment approach increases production, the economic benefit accrues to the current owners, who re-invest to acquire more productive capital wealth rather than consume a growing portion of their capital incomes. This concentrates ownership even further.

What historically empowered America’s original capitalists was conventional savings-based finance and the pledging or mortgaging of assets, with access to further ownership of new productive capital available only to those who were already well capitalized. As has been the case, credit to purchase capital is made available by financial institutions ONLY to people who already own capital and other forms of equity, such as the equity in their home that can be pledged as loan security––those who meet the universal requirement for collateral. Lenders will only extend credit to people who already have assets. Thus, the rich are made ever richer, while the poor (people without a viable capital estate) remain poor and dependent on their labor to produce income. Thus, the system is restrictive and capital ownership is clinically denied to those who need it.

The conventional approach relies on savings for additional investment in new productive capital assets, instead of providing the means to satisfy people's material needs and wants. The result has been to create a global ownership class of very rich people who reinvest most of their capital incomes to further their concentrated wealth ownership.

Supporters of this economic paradigm argue that no income generated by capital should be used for consumption. Instead, all capital income should be reinvested in ways that create new capital, thereby providing jobs for the masses until full employment is reached. Thus, most economist today assume that there is virtually no other means whereby most people can earn an income except in the form of wages paid for their labor.

Moulton summarized the results of his investigation:

“We find no support whatever for the view that capital expansion and the extension of the roundabout process of production may be carried on for years at a time when consumption is declining. [i.e., when saving is taking place.] The growth of capital and the expansion of consumption are virtually concurrent phenomena.”

Of course, the supporters of the arcane economic paradigm ignore and are oblivious to the reality that tectonic shifts in the technologies of production are destroying jobs and devaluing the worth of labor as increasingly the non-human productive capital factor is replacing the need for labor in the production of products and services needed and wanted by society.

Understanding Moulton is absolutely necessary in order for us to set out on a path to prosperity, opportunity, and economic justice. The question that Moulton poses is what should be the source of financing for capital formation?

Moulton answered the question as follows:

“A new and even more dynamic factor has come into the process of capital formation through the evolution of modern commercial banking. The development of the banking system, with its ability to manufacture credit, has served to render funds immediately available for the purposes of capital creation without the necessity of waiting upon the slower processes of accumulating funds from individual savings. The result is to sustain productivity at a higher level and to facilitate the growth of new capital at a more rapid rate than would otherwise have occurred.”

In other words, as noted in the forward to Moulton's new edition:

“New capital formation can be financed by using money created by the commercial banking system. It is not necessary (and even counterproductive from the standpoint of economic equilibrium and sustainable growth) to rely on cutting consumption to generate the savings necessary to finance new capital formation.

“Following Moulton's reasoning, the remedy to an economic downturn is thus not to manipulate the money supply by increasing government debt or bailing out failed speculation (which, among other problems, distorts the operation of the market and places a debt burden on future taxpayers). Nor is it an effective, long term solution to stimulate demand by subsidizing artificial job creation, legislating higher minimum wages, ignoring market forces in collective bargaining negotiations, imposing price controls or supports (especially on interest rates), or redistributing existing wealth. Such measures may be necessary at times as expedients, but are ultimately self-defeating. Instead, what is needed is to:

“1) Increase production by financing new capital formation through the extension of bank credit backed by the present value of the future stream of income to be generated by the new capital.

“2) Get the profits generated by the new capital into the hands of all workers and citizens who will use it for consumption, not reinvestment in additional new capital.”

In reading The Formation Of Capital, Moulton fails to list as a possible solution widespread, direct private ownership of the means of production. As noted by my colleagues at CESJ in the forward to the new edition:

“A broad base of owners and diversity in the forms of productive capital owned would ensure that all workers and as many people as possible, including the disabled and poorest of the poor, would receive income generated by many forms of advancing technology, and would use the income from their capital for consumption rather than reinvestment.”

Moulton's omission was addressed by Louis Kelso and Mortimer J. Adler in their 1958 book The Capitalist Manifesto. Kelso, a successful corporate lawyer and self-schooled economist, was also an expert in finance who later formed a leading investment banking firm specializing in his financial mechanism, the Employee Stock Ownership Plan (ESOP) and other methods for financing worker and broader citizen individual ownership in productive capital. In the late 1960s, I had the privilege to form with Kelso Agenda 2000 Incorporated, a consulting firm, whose advocacy mission was to provide financial mechanism for economic development based on the Kelsonian principles underlying the binary economic or two-factor model of economic reality.

The Capitalist Manifesto made the moral and economic case for widespread ownership of the means of production. How to finance widespread productive capital ownership was spelled out in the assertive subtitle to The New Capitalists: A Proposal To Free Economic Growth From The Slavery Of Savings. (Both books are available as free downloads at and, respectively.)

Not surprisingly, the source that Kelso and Adler referenced most often in The New Capitalists is Moulton's The Formation Of Capital. Moulton showed how the extension of commercial bank credit can be used to finance capital formation without requiring existing accumulations of savings. What Kelso and Adler argued as the solution to the income distribution problem was to democratize access to direct, private ownership of new capital formation.

Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. Advancing technology continues to rapidly take over the vast bulk of production from human labor.

As pointed out in the forward to the new edition of The Formation Of Capital, Moulton demonstrated that the chief means by which capital formation is financed in a modern industrial and financial economy is commercial bank credit backed by the present value of the future stream of income to be generated by the newly formed capital assets themselves with the collateralization requirement of existing accumulations of savings (already owned assets). To this Kelso added that 1) the ownership of the new capital financed with what he called "pure credit" must be broadly owned, and 2) the universal collateralization requirement could be met by using capital credit insurance and reinsurance in place of existing accumulations of savings.

Kelso's refinements of Moulton's work underpin a comprehensive national economic program called "Capital Homesteading" ( and, developed by the Center for Economic and Social Justice. The "Capital Homestead Act," which gives a legislative framework to the program is a way to implement both Moulton's insights and Kelso's solution to the income distribution problems of a modern economy. It would empower every American man, woman and child, including the poorest of the poor, with equal opportunity and the social tools to acquire, control and enjoy the fruits of productive corporate capital assets. Based on a new socio-economic paradigm that some have called the "Just Third Way" (as the moral alternative to traditional capitalism and socialism), Capital Homesteading also offers a template that can be tailored to eradicate poverty and economic powerlessness in the poorest of nations around the globe. (see the Agenda of The Just Third Way Movement at

The means by which Capital Homesteading proposes to achieve its goals involve major restructuring of America's tax system and Federal Reserve policies (see abridged These are designed to lift artificial barriers to more equitable distribution of FUTURE corporate capital and stimulate faster growth rates of private sector investment. Capital Homesteading would shift primary national income maintenance policies from inflationary artificial wage increases and unproductive income redistribution expedients, to market-based ownership sharing and dividend incomes.

The proposed Capital Homestead Act would reform monetary institutions and tax laws to democratize access to capital (productive) credit. By universalizing citizen access to direct capital ownership by making available "interest-free" productive credit and new, asset-backed money for increasing production, Capital Homesteading would close the power and opportunity gap between today's haves and have-nots, without taking away property from today's owners.

As my colleagues conclude in the forward to the new edition:

“Moulton's insights in The Formation Of Capital suggest a practical and morally sound basis for restructuring the financial system to enable money to be created as needed to finance sustainable economic growth. World poverty can be eradicated, something not possible within the current economic paradigms, which rely on existing accumulations of savings to finance capital formation. With the specter of another economic depression looming over today's world, and with the widening gap between "haves" and "have-nots" threatening social harmony, there is no real justification for delaying the implementation of a program of Capital Homesteading to establish and maintain a free, prosperous and just economy for all.”

For other related articles, please see my article "Democratic Capitalism And Binary Economics: Solutions For A Troubled Nation and Economy" at

Also please see my article "The Absent Conversation: Who Should Own America?" published by The Huffington Post at and by OpEd News at

Also see "The Path To Eradicating Poverty In America" at and "The Path To Sustainable Economic Growth" at

Also see the article entitled "The Solution To America's Economic Decline" at and "Education Is Critical To Our Future Societal Development" at And also "Achieving The Green Economy" at Also see it complete with the footnotes at

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