People’s Capitalism

News articles and reports appear almost daily on the subject of how technological developments in Artificial Intelligence and robotics will cause dramatic changes to employment over the next few decades. The stereotypical article will refer to Frey and Osborne’s claim that 47% of US jobs will be affected (see my previous post) and will take one of 2 lines:

  • We have been scared about technological unemployment before but we should not be so arrogant to believe that just because we can’t think of what new jobs might come along to replace them then no one else will either. We will just have to educate our workforce to make them flexible for whatever comes along.
  • ‘This time it’s different’. Jobs will be lost and we will have to adjust our entire economic system to deal with this. We don’t really know what we should be doing, but it is possible that Universal Basic Income might provide the answer.
James Albus

James Albus

James Albus’s book ‘Peoples’ Capitalism: The Economics of the Robot Revolution’ is different though. It surprises in a number of ways:

Unlike others, he provides detailed proposal of economic changes to gradually transform the economic system to one in which the majority of work has been automated.

Yet he was not an economist himself. He was an engineer, interested in the neuroscience that inspired his area of technology and interested in the consequences of his area of technology on society:

Perhaps most surprisingly, given what it says, is that it was published over 40 years ago – in 1976! It is timely and remarkably prescient.

Below, I provide not a summary but an abridgement of the book (down to about 20% of its original size) so that it still predominantly retains the voice of the author. Bold emphasis is mine – for particularly interesting phrases, biased toward concerns for the individual and the environment.

James Albus's ‘People's Capitalism - The Economics of the Robot Revolution’

James Albus’s ‘People’s Capitalism – The Economics of the Robot Revolution’

Preface: Epilogue to Scarcity

We are now on the brink of a new industrial revolution, based on the substitution of electronic computers for the human brain which will change the history of the world every bit as profoundly as the first. A new generation of machines will create wealth unassisted by human beings, and so allow the human race to free itself from the dehumanizing demands of mechanization. It will free people from having to structure their lives around daily employment in factories and offices so that they can choose their own lifestyles from a much wider variety of possibilities.

Human benefit is the ultimate measure of goodness for any social or economic system. Unfortunately, the present economic system is not structured to deal with the implications of a robot revolution –  automated factories would threaten jobs and undermine the financial security of virtually every family. America is a nation of wage earners, and in a very real sense, ‘wage-slaves’.

This book is an attempt to address some of the fundamental problems of income distribution and capital ownership in a society where most goods and services could be produced by machines.  We have an outmoded system of incentives that does not make use of what is available to produce what is needed. If we properly utilized our scientific knowledge and our industrial capacity, we could eliminate poverty and guarantee personal financial security to everyone, in an environmentally and balanced way.

The great challenge will be the development of an economic system to achieve this.

The ‘People’s Capitalism’ proposal here proposed three new institutions:

  1. A National Mutual Fund (NMF) to finance capital investment in socially beneficial industries. The NMF would be authorized by Congress to borrow money from the Federal Reserve System. Profits from investments would be paid by the NMF to the general public in the form of dividends so that the average citizen would receive income quite independently of employment. Every citizen would become a capitalist in the sense of deriving a substantial percentage of their income from dividends paid on invested capital.
  2. A Demand Regulation Policy (DRP) would be instituted to provide sufficient savings to offset NMF investment spending. This would prevent short term demand-pull inflation by withholding income (graduated according to income) from consumers by mandatory payroll deductions and convert it into savings bonds.
  3. A Federal Department of Science and Technology would focus modern technology more directly on problems relevant to human needs.

Within three decades, these proposals would lead to:

  1. A society where every citizen would derive a significant fraction of his or her income from invested capital.
  2. A society where industrial ownership and economic power would be distributed widely enough so that every citizen would be financially independent.
  3. A society where people would work primarily for pleasure or for supplemental monetary benefits. Noone would be forced to work out of economic necessity.
  4. A society where a diversity of lifestyles would flourish and rewards for achievement would be high.
  5. A society in which prices would be stable and prosperity could be maintained without planned obsolescence, make-work, waste, or pollution.

Without any significant changes in our constitutional form of government, it would revitalize the free-enterprise system to mobilize the full creative resources of our scientific and industrial capacity in a national effort to solve our most pressing human problems.

I am not a professional economist. As a scientist, I tend to ask what is possible, not what is customary. I have been trained to ask simple questions and to distrust complicated answers.

The questions to be addressed are:

  • If robots eventually do most of the economically productive work, how will people receive an income?
  • Who will own these machines?
  • Who will control the powerful economic and political forces they will represent?

In this book, I have attempted to go beyond simply asking questions and have proposed some solutions. I do not claim that my solutions are the only possible ones, or even the best. I do believe they are a step in the right direction.

 

Contents

Preface: Epilogue to Scarcity

I: America: The Affluent Society?

  • The Inadequacy of Conventional Economics

II: The Paradox of Poverty Amidst Plenty

III: How We Distribute Wealth

  • Pressures for Full Employment
  • Pressures for Unemployment
  • Handcraftsmanship and Personal Services
  • Women’s Liberation
  • The Importance of Our Cultural Heritage

IV: The Threat of Productivity

  • The Effect of Investment
  • The Threat to Jobs
  • Automation and Power: Economic and Political
  • The Concentration of Ownership
  • Computers and Robots

VI: Peoples’ Capitalism: An Alternative

  • The Employee Society
  • The National Mutual Fund
  • The NMF and Free Enterprise
  • Incentives for Diversity

VII: Peoples’ Capitalism and the Individual

  • Financial Security and Personal Freedom
  • The NMF and Individual Incentive
  • The Effect on Political Freedom
  • A Bigger Pie with Bigger Slices

VIII: The Quest for Stable Prices

  • Productivity and Prices
  • A Different Strategy
  • Investment Payback Delay
  • Monetary Policy
  • Tax Policy
  • Budgetary Policy
  • Time for a Change

IX: A Formula for Price Stability

  • Part 1: Dealing with Excess Demand
  • Part 2: Dealing with Insufficient Demand

X: A Department of Science and Technology

  • A Role for the Federal Government
  • Science at the Cabinet Level

XI: Peoples’ Capitalism in a Finite World

  • The NMF and Limits to Growth
  • An Alternative to Urbanization
  • Continued Growth and the Environment

XII: From Throughput to Storehouse Economics

  • The NMF and Storehouse Economics

 

I: America: The Affluent Society?

We produce fantastic quantities of almost everything imaginable and are clearly capable of producing much more, but we distribute this output so poorly that almost twenty percent of our population lives either near or below the poverty line. Millions of Americans are undernourished and without adequate medical care. Millions more live in dilapidated homes and slum tenements. Our cities are dying from neglect and decay. Public transportation is inadequate or non-existent. Streets are lined with abandoned buildings inhabited only by dope addicts and alcoholics. Urban neighborhoods are terrorized by muggers and racketeers. Garbage fills streets and alleyways.

Very few people feel that they have any significant margin of financial security. The lifestyle of the average middle-class family could most accurately be described as affluent poverty. Most families are heavily in debt. In many households both the husband and wife are forced to work.

The Inadequacy of Conventional Economics

We possess the agricultural capacity to feed our hungry children many times over. We have a construction industry easily capable of rebuilding our cities. We have the technological and intellectual resources to improve medical care, reduce pollution, and make our communities safe, clean, and livable. The wealth-producing potential inherent in modern physics, electronics, chemistry, nuclear engineering, semiconductor technology, and computer-based automation are awesome and totally unprecedented.

Unfortunately, they cannot be fully exploited for the benefit of all until some means other than wages and salaries is found for distributing the additional wealth they could create to the average citizen.

The existing system has no adequate mechanism for organizing or financing a really serious effort at eliminating the wretched conditions under which a large number of American citizens still live. It depends on mass consumption to sustain prosperity. If poverty is to be eliminated, some new system must be devised wherein the emphasis could be placed on conservation rather than consumption.

 

II: The Paradox of Poverty Amidst Plenty

Ours is an age of cynicism. Utopian dreams went out of style just when science and technology had reached a level where the elimination of physical poverty had become a real possibility. How could we have so seriously mismanaged our resources that tens of millions of Americans are officially classified as poor?

The conventional wisdom is that the poor are different from other members of society and that this difference is the basic cause of their poverty. Most people will admit that, at least to some extent, the poor are victims of their environment. Poor people are often deprived of important advantages and excluded from opportunities, but in the final analysis, most observers have ascribed the blame for poverty to the personal deficiencies of the poor themselves.

The traditional view, exemplified by Michael Harrington (‘The Other America’) and J. K. Galbraith (‘The Affluent Society’) is that cultural deprivation is the cause and the lack of income is the effect. But it is just as reasonable to conclude that lack of income is the cause and cultural deprivation is the effect. F. Scott Fitzgerald is reported to have remarked, “The rich are different,” to which Ernest Hemingway replied, “Yes, they have money.”

Schemes to relieve poverty by cultural enrichment programs has been spectacularly unsuccessful. Bennet Harrison: ‘instead of concentrating government money on so-called ‘defects’ in the poor people, it would be more profitable to focus first on defects in the labor market.’ The only way to deal realistically with poverty is to change the income distribution system so as to narrow the extremes of income inequality.

 

III: How We Distribute Wealth

Pressures for Full Employment

One of the inevitable effects of distributing income almost exclusively through wages is that it generates overwhelming pressures for full employment.

There are enormous incentives to get and hold a job. The results are that make-work projects of every type and description are created, some of which are not only useless, but positively harmful.  Growth means jobs, and we have written tax laws and zoning ordinances to encourage and foster growth. Marketing and advertising programs are promulgated to create demand for absurd or trivial products. Goods are deliberately designed to quickly become obsolete, either through normal wear or changes in style. America has become a throwaway culture; a society of ‘Waste Makers’ manufacturing disposable products that cannot be repaired or reused.

And much of the memo writing, paper shuffling, and red tape that goes on both in private industry and in government serves no other purpose than to provide work for otherwise unnecessary managers and bureaucrats.

Because virtually the only way to get income is to have a job, a system has been created that is enormously wasteful both in terms of natural resources and human creativity.

Pressures for Unemployment

Paradoxically, the political pressure for full employment, create conditions that virtually guarantee serious unemployment. The increasing ratio of capital to labor has brought continuously rising output per man-hour. This increased output might be attributed to increased skill or increased physical effort on the part of workers, but, in the overwhelming majority of cases, the increased output has been wholly due to more sophisticated machines or more efficient process technology.  More has been produced and thus more must be distributed.

An employer must minimize labor costs to survive and so strive to hire as few persons as possible, not because he has nothing for additional employees to do, but simply because labor is such a significant cost factor that every effort must be made to keep the payroll at a minimum.

But since wages are virtually the only means available for placing purchasing power in the hands of consumers, wages have had to rise to consume this increased output. This means that many useful tasks are simply too expensive to be done. Streets need cleaning, buildings need repair, community health and recreation facilities need to be maintained, but the cost of labor is too high. And similarly in universities and research laboratories.

Milton Friedman has for years argued against the minimum wage laws, not on the basis that they are ideologically repulsive but because they virtually guarantee a high level of unemployment among low-skilled persons. We have an abundance of useful work that needs doing and a surplus of people willing and able to do it. Yet nothing can be accomplished because employers cannot afford to hire people for jobs that are not absolutely necessary.

Handcraftsmanship and Personal Services

The distribution of most of the nation’s income through wages and salaries distorts the nation’s production priorities by constricting the flow of income to just labor that is capital-intensive. The only way for persons with ordinary skills and talents to obtain a decent income is to work for  industries with a high capital-to-labor ratio. The unaided human craftsman or service person simply cannot create wealth as fast as a complex piece of automated machinery.

Handcrafted goods and personal services have virtually disappeared from all technologically advanced societies. We are told that they are victims of progress. But is this really progress?

Where is the gain in forcing people out of nearly self-sufficient lifestyles in rural areas and small towns and crowding them together in urban ghettos where unemployment is epidemic and welfare is the principal source of income? There must be something basically wrong with the system that produces these results.

Women’s Liberation

The distortion of social priorities resulting from constricting the flow of income to the capital-intensive sector discriminates against housewives. A great deal of the wealth that society enjoys is created by the labor of housewives.  It has been estimated that housewives’ work amounts to roughly one quarter of the Gross National Product. Yet the economic system does not pay wages for these services and so they share none of the prestige of having “earned” their money

Yet, their work is critical to the stability of the social order and is certainly more important than much of the paper shuffling and petty office politics that passes for work in offices and executive suites.

The Importance of Our Cultural Heritage

Modern society is complex: almost everything depends on everything else.  It is completely arbitrary to distribute wealth through wages and salaries as if the presently employed labor force were solely responsible for all the wealth created. The entire industrial-technological economic system rests upon a foundation of social stability and most of the output of modern industry is not due to the presently employed labor force at all, but to the capital stock, the scientific, technical, and managerial knowledge, the educational training, and the social and cultural behavior patterns that have accumulated and developed over the past three centuries or more.

Most of the increase in productivity many sectors of the industrial economy, are almost all due to increases in the amount of capital equipment and the sophistication of the machinery and techniques used in the manufacturing process. They are hardly ever the result of any specific efforts of the currently employed labor force.

To distribute the wealth that this society produces almost exclusively through wages and salaries unjustly ignores the contribution of millions of persons who work outside of the formally recognized labor force and grossly distorts the system of values that society places on various types of culturally beneficial activity.

The narrow dependence on wages and salaries virtually guarantees high levels of unemployment and makes poverty inevitable. It wastes a large percentage of our available resources and productive capacity on makework and unnecessary trivia. It leads to the demise of handcraftsmanship and personal services and discriminates against those who work outside the regular labor force.

This economic system, with such fundamental defects, fails to produce up to its potential capacity.

IV: The Threat of Productivity

The most serious cost to society may be the loss of wealth that can never be produced because of the threat to jobs posed by increasing productivity through technological innovation. Productivity is a measure of how much wealth can be produced from a given amount of labor, capital, and raw materials. Increasing productivity means getting more output from less input.

The history of the industrial revolution is a chronology of the development of better and more productive machines for increasing the amount of goods and services that can be produced from a given input of labor, capital, and raw  materials.

During the 18th and 19th centuries, the substitution of machines for hand labor brought a degree of material prosperity to the average citizen. The use of mass production, interchangeable parts, and automatic machines (known as the “American System.”) was not so much to make luxury items for the rich, but to satisfy the demands of the average worker.

Today, increased productivity has become more of a necessity than a luxury. If it were not for high productivity in agriculture, virtually the entire world’s population would be reduced to malnutrition and starvation. If we ever hope to advance beyond our present quality of life toward any of the costly but socially desirable goals such as better health care, more livable cities, and a cleaner environment, major new increases in productivity will be needed.

The Effect of Investment

In the short term, productivity tends to fluctuate with the business cycle. But the vast majority of long-term productivity increases are due to more capital, economies of scale, and improved technology. Investment, of course, is the source of all of these. Increased productivity is ultimately derived from new technology.

We produce more and better cars, ships, planes, dishwashers, computers, and TVs today than 50 years ago not because we work harder but because we know more and we use that knowledge to build machines and factories that produce more output with less input. It is often said that “they don’t build things like they used to” and that is true. If they did, either most workers would have to take a 90% pay cut, or most goods would cost ten times what they do today.

There are numerous reasons for believing that over the next 20 years new technology in the field of computers and robots will make productivity even more sensitive to the rate of investment than was the case during the 1960-1972 period.

The Threat to Jobs

From the very beginning of the industrial revolution, increased productivity has derived principally from the substitution of machines and mechanical energy for human labor in the production process. Machines are essentially helpers or servants that work for free. But the practice of distributing almost all income through wages and salaries virtually assures that automatic machines will sooner or later change roles from helpers to competitors. Human workers typically own no part of the machines with which they work; they benefit from the wealth-producing capabilities of automation only so long as they remain employed.

It is small consolation to know that productivity has risen a fraction of a percentage point if you have just lost your job.

Automation and Power: Economic and Political

Popular science-fiction literature and movies typically depict future hordes of robots threatening their human masters but they completely miss the point of the real danger: the concentration of economic and political power that will fall into the hands of machine owners.

A highly paid but functionally superfluous work force is vulnerable to pressures from the employer establishment. Such a workforce, even though prosperous, is politically impotent, for its prosperity exists solely at the pleasure of the machine owners.

The Concentration of Ownership

1% of the families in the United States presently own over 50% by value of all corporate stock. Less than 5% of American families own more than two-thirds of all stock but control almost all corporate assets. This concentration of economic power in the hands of a tiny super rich elite, accountable to hardly anyone but themselves, shows no significant tendency towards decreasing. The next generation of automation could reduce the entire economic system to complete domination by few super-rich families.

The average citizen simply does not see himself as the beneficiary of massive capital investments in big business. The multinational corporations and the big conglomerates are perceived more as threats than as benefactors.

 

V: The Advent of Super-Automation

The development of the electronic computer will be viewed by future historians as one of the great milestones in human history. It is qualitatively different from all other machines in several important respects:

  1. Its mechanisms are electronic rather than mechanical, operating many orders of magnitude faster than other devices.
  2. A computer does not wear out in any normal sense of the word.
  3. Most importantly, a computer can store and manipulate large quantities of information and make decisions.

In theory, if not yet in fact, computers are capable of performing almost all of the decision and control functions currently done by humans in the basic manufacturing industries.

Computers and Robots

Almost surely, if computers and robots are cast in the role of competitors to human labor, then human workers will lose just as surely as John Henry was eventually replaced by the steam drill. However, if the ownership of future automatic factories is shared by a large percentage of the population and if the wealth created by automated industries is distributed so as to increase the income of everyone, then the benefits of automatic manufacturing may completely eliminate poverty.

Unfortunately, the existing income distribution system contains no mechanisms designed to prevent direct competition between robot and human labor. so there exists no public support for a major national effort to accelerate the pace of robot development. Hence we cannot reap the  rewards that would arise from the resulting productivity gains. But a second industrial revolution is certainly coming whether the average American wants it or not. The world economic system is structured such that automatic factories are inevitable.

Robot technology, like computer technology, has military as well as economic implications. But even assuming that this technology were never used for military production, the country that possessed such a large surplus of efficient production facilities could easily dominate the world economically simply by selling manufacturing capacity at rates far below what countries using less efficient methods could hope to match.

The development of machines that can create wealth unattended by human workers and, in a sense even reproduce themselves, will have profound effects on human history at least as great as any scientific discovery or political revolution that has ever taken place. Whether this results in unprecedented benefits or economic chaos depends largely on whether we can devise satisfactory answers to the questions: “Who owns these machines? Who controls them, and who gets the wealth they create?”

These are questions that go to the very heart of the income distribution system. As long as we have a system in which only a tiny minority of the people own or control virtually all of the wealth creating capital stock, and the rest of the population must rely on selling their labor for income, we will have a situation where automatic machines and advanced technology will inevitably threaten the security and personal dignity of the average person. Only if we can devise a means by which everyone can share in the control of modern technology, as well as in the wealth that it creates, will the fantastic capacities of the coming generation of super-automation be released to assist mankind in solving the urgent problems of our society.

 

VI: Peoples’ Capitalism: An Alternative

The great tragedy of the present economic crisis is that it is physically and technologically avoidable. The United States, and indeed the world, has more wealth and power at its disposal today than at any previous time in history. But we have many more jobs that need doing than there are unemployed persons seeking work.

America made more progress against poverty between 1941 and 1945 than ever before or since. If workers prosper during wartime despite the fact that most of what they produce is destroyed, then certainly they should prosper even more if the fruits of their labors were distributed so as to benefit themselves and society. Clearly, if our industrial capacity were mobilized for the benefit of mankind in the way that we know it can be for war, the problems of poverty, pollution, and economic stagnation would cease to exist.

There is something desperately wrong with the fundamental principles of an economic system that allows such overwhelming need to persist while unused capacity sits idle. Establishment economists  cannot answer the central economic question of the industrial era. Why can’t we use what we have to produce what we need?

The simple fact is that most of the truly fantastic capacities of modern technology and industrial power have never been focused on the really important problems of hunger, pollution, and human suffering. We have wasted our resources on trivia and allowed the talents of millions to languish in underemployment.

What are lacking are the appropriate social and political institutions. We must somehow reorganize our system of rewards, incentives, and methods of wealth distribution so that they encourage individual behavior that is beneficial to society and societal behavior beneficial to the individual.

The Employee Society

The genius of free-market capitalism in its early days was the symbiosis between private and public interests that Adam Smith called an “Invisible Hand”. But this has largely disappeared from the present economic system.

A first step in restoring symbiotic harmony to our economic system would be to make our institutions for capital financing and income distribution correspond more closely with reality. We claim to be a capitalist society; i.e., a society based on the concept that private ownership of wealth-producing capital is a legitimate source of personal income. Yet the overwhelming majority of Americans, even in the middle and upper-middle income brackets are simply employees.

America is not a capitalist society at all; it is an employee society. We are wage earners and, in a very real sense, wage slaves. Our economy is choked with makework, featherbedding, mass advertising of trivia, and wasteful use of natural resources and human talent. This is the inevitable result of distributing most income through wages and salaries in an economy where most wealth is created by capital.

If we were really capitalists, then the benefits of productivity increases would be distributed primarily through dividends instead of through wages and salaries. Industrial robots, automatic factories, and computerized offices would then be no threat to jobs. Increased efficiency would benefit everyone.

People do not work any harder now than they did a thousand years ago and they are not inherently any more intelligent. The productivity of the existing labor force today is due to modern equipment, improved knowledge, and more efficient process technology. Human labor has long since ceased to be the most important ingredient in the industrial process; indeed, in many industries, human workers are the principal cause of production defects.

If we admit that machines can run industries just as well, if not better than, people, then we could devise an income distribution system based on something other than employment. We would then have a society where machines provide the fundamental economic base and people are free to develop their creative talents to the fullest.

There will always be some necessary work requiring human effort even in the most automated society. Medical care, teaching, counseling, entertainment, and personal services can never be satisfactorily automated in their entirety. Furthermore, there will probably always be large numbers of people who receive great satisfaction from regular employment.

Nevertheless, it is quite possible to have a hybrid economic system where a basic minimum income would accrue to everyone out of the profits from automatic industries while, at the same time, those who wished to work could supplement their basic income with a salary.

How could such a system be practical? What new institutions would be necessary to implement the distribution of income through public dividends?

The National Mutual Fund

A semi-private investment corporation, the National Mutual Fund (NMF), could be formed. The NMF would earn a profit by investing money in stocks but differ from an ordinary mutual fund in four important respects:

  1. Every citizen would be a shareholder by virtue of his or her citizenship.
  2. The NMF would borrow the necessary investment capital from the Federal Reserve Bank, rather than obtain its investment funds from its shareholders.
  3. The NMF would concentrate its investments on long-term productivity growth, financing the modernization of technically backward industries and the building of new automated factories.
  4. The NMF would distribute the profits from its investments directly to the public on a biweekly basis.

The NMF and Free Enterprise

The National Mutual Fund would not be a branch of government; it would be a profitmaking business institution operated for the primary purpose of earning dividends for its stockholders. The distribution of NMF profits to the public would increase incentives for businesses to weed out sloppy management and poor service. This is a situation that is vastly different from that existing in socialist economies where state-owned and operated businesses have few incentives to be efficient.

Incentives for Diversity

The existence of NMF financing would increase diversity and competition within the private sector and, providing a counter force against the concentration of economic power in the hands of a few enormous corporations. It would reduce the advantage of simply being big through being a ready source of investment capital to small firms as well as large.

 

VII: Peoples’ Capitalism and the Individual

The most important effect of the NMF would be to increase the personal freedom of the individual citizen.

In America, the physical environment is determined to a large and ever increasing degree by the major corporations. A significant percentage of what we eat, what we wear, what we listen to, what we see, what we live in, what we work at, what we use to get from one place to another is manufactured by the top 100 corporations. The power of the individual citizen to influence this process is virtually nil. We generally either go along with it or drop out.

The NMF would help reverse this trend. Businesses owned by the NMF would belong to the people and thus would be sensitive to pressure from public opinion. Corporate management would be ultimately responsible to the public. This would affect public attitudes toward business, making the average citizen much more aware of the importance of efficient business practices. This might create an atmosphere more conducive to cooperation between labor and management or, at least, help reduce the intensity of the adversarial relationship. The immense wealth and power of the major corporations would gradually be brought under democratic control.

There are many to whom the concept of subjecting  corporate power to democratic control seems revolutionary. But only two hundred years ago, the concept of subjecting governmental power to democratic control was considered by most people in this country to be revolutionary. Fortunately for us, our forefathers had enough confidence in the average citizen to entrust the enormous power of the national government to the democratic process.

Future generations may regard democratic control of industrial power to be as essential to their freedoms as we believe democratic control of the government to be to ours today.

Financial Security and Personal Freedom

NMF dividends would give to every individual a degree of personal independence and freedom from economic constraints. They would have a financial cushion and be more selective than otherwise in choosing their employment such that it offered them a personal sense of accomplishment and fulfillment. They would have more freedom to seek additional education, to choose where they wish to live and to structure their own lives according to their own tastes .

Many individuals would go into business for themselves. Quite likely, there would be a revival of such personally satisfying occupations as handcraftsmanship. The reason why the skilled artisan disappeared was not that people developed a distaste for working with their hands. This is obvious from the fact that many persons today pursue handcrafts as a hobby. Handcraftsmanship as a source of income was effectively destroyed by the advent of machine-made goods that made it impossible to earn an adequate living by hand labor. There is, and always has been, a market for handmade goods. The result would almost surely be a great revival in handcraftsmanship.

Family farming is another example of an occupation that very likely would exhibit a strong resurgence. Sociologists for decades have deplored the urban migration that has led to overcrowded city slums, as well as to depopulated and depressed rural communities. If the citizens of remote rural areas had some source of income from the technological/industrial sector, these regions would easily be self-supporting and revived.

An NMF income might stimulate an increased interest in the arts and in science for its own sake. Great art is sometimes born of adversity, but it is more often a product of affluence. The same holds true of scientific endeavors. The NMF could also be expected to cause a great upsurge in volunteer work of all kinds. If a particular endeavor is interesting enough, people will do it for nothing.

The present day job environment subjects the human body to many stresses (or lack of stresses) for which it is not particularly well adapted. Supplemental NMF income would be much more conducive to mental and physical health than are present jobs.

The NMF and Individual Incentive

It might be argued that an NMF payment would cause a significant percentage of the population to quit working and simply atrophy. But there is evidence to the contrary.

Studies showed that women had a tendency to quit their jobs and return to their homes, elderly men changed to shorter, less demanding jobs requiring fewer hours of work, and persons in poor health stopped working altogether. But these were offset by increased work incentives in other groups. The income subsidies evidently gave individuals enough financial security to quit working for a while to search for better jobs. This applied to the young and relatively well educated in particular.

Money is not the only incentive, or even the principle incentive, that causes people to pursue productive lives. The principal factor that causes people to work would appear to spring more from a psychological need to feel useful and achieve success.

Of course, in our present system, money is closely associated with success. But even where money is an important incentive, the total amount of money received is not nearly so important as the amount of money relative to what other people are being paid. The compulsive workers among us are motivated by something much deeper than a weekly paycheck. The primary incentives for work would remain what they are today; i.e., the need to socialize, to compete, to achieve, and to escape boredom.

No one’s talent would go undeveloped for lack of opportunity.

The Effect on Political Freedom

The increased personal freedoms resulting from NMF income would be indistinguishable from political freedoms. If people cannot live where they wish, cannot travel where they want to go, and are prevented from providing their families with proper food and clothing, they are not free, and to some degree it is academic whether such restrictions are economic or political.

There is a direct relationship between personal economic security and political freedom. Where a population is economically powerless, political freedom is almost meaningless.

When the wealth of a nation is controlled by any small minority of the population, whether that group be made up of feudal barons, a ruling politburo, or the boards of directors of the major corporations, true democratic government is impossible.

The history of the American Revolution is a classic example of the critical link between financial security and political freedom. People who are financially secure, especially through the ownership of the means of production, do not readily submit to political pressure or lightly forfeit their personal liberty.

A Bigger Pie with Bigger Slices

It has sometimes been suggested that the benefits of the NMF could be achieved equally well by simply extending the welfare system or instituting a negative income tax. To the extent that these measures would redistribute the nation’s income and raise benefits to the poor, this may be true.

But redistribution of income through the tax system merely changes the way the pie is sliced; it does not increase its size. Increases in the welfare state or the institution of a negative income tax discourage innovation and retard individual excellence. They tend to homogenize society, to hold back achievers.

In contrast, the NMF would create wealth, increase productivity and encourage innovation. The total pie would get larger and everyone would share in the increase.

An economy based on the NMF would distribute most income from high technology industries equally, but the rest of the economy would be fair game for competition.

 

VIII: The Quest for Stable Prices

Consumption (the using up or the wearing out of goods and services) is regulated by the amount of money that is available to individuals, businesses, and government for spending. Production, on the other hand, is regulated by the level of investment, by the availability of labor and raw materials, and by the efficiency or productivity of the techniques and methods used in the productive process.

Inflation is nature’s way of maintaining a balance between consumption and production. Modern economists classify the causes for inflation into two categories:

  • ‘Demand-pull’ inflation is the classical form caused by too much money chasing too few goods.
  • ‘Cost-push’ inflation is where increasing costs in the production process itself forces the price of goods and services upward.

Cost-push inflation responds poorly or may actually be exacerbated by the classical remedies of monetary and fiscal restraint.

Productivity and Prices

The difference between wage increases and productivity increases is strongly correlated with the inflation rate over the past quarter century which strongly suggests that a primary cause of inflation is that wage increases exceed productivity increases.

Contrary to popular political rhetoric, budget deficits seem to have no clear relationship to inflation at all. There appears to be a slight tendency for inflation to precede budget deficits, indicating that deficits may be caused by rising prices, but there is certainly no evidence for the reverse.

There is little correlation between inflation and deficit spending. This strongly suggests that the fundamental cause of inflation is that of wage increases that exceed productivity gains. The only hope for a permanent cure to inflation is to close the gap between wages and productivity,.

The ‘Phillips curve’ in every modern economics textbook pretends to show the rate that wages can be expected to rise each year for any given rate of unemployment. The principal result of policies designed to create unemployment has been simply that — unemployment.

A Different Strategy

Why not try raising productivity instead?

The increase in investment required to improve productivity would reduce unemployment and end recession. The construction of new plants, machines, and transportation facilities would create jobs and stimulate business. Through increased investment we could mobilize our nation to overcome shortages, feed the hungry, house the poor, and, in general, make this land a delightful place in which to live.

The low rate of United States productivity growth is a direct result of our low rate of capital investment. NMF investment would stimulate business and reduce unemployment.

Investment Payback Delay

One major problem of fighting inflation through increased investment is the ‘investment payback delay’. With any investment, there is an unavoidable delay between making the investment and seeing its effects. During this interim period, investment spending tends to create short-term demand-pull inflationary pressures.

The time lag between investment-created demand and investment-created supply has historically been responsible for the classical oscillations in economic activity known as business cycles, or alternating periods of boom and bust.

Unfortunately, all of the techniques that are presently used for price stabilization operate on the basic principle of reducing demand by limiting investment. If the NMF were to embark on a policy of drastically increasing investment spending (through money borrowed from the Federal Reserve Bank), it would be working at complete cross-purposes with all of the existing price-stabilization mechanisms.

Some new mechanisms for limiting short-term demand will be required – a new mechanism will be proposed.

Monetary Policy

Monetary policy is the regulation by the nation’s banks of the amount of money in circulation.

Monetary restraint will produce not only recession and unemployment, but continued or even increased inflation. Even when successful, it exacts a terrible price. Short-term price stability is achieved at the cost of a long-term decline in the production of wealth.

Tight money and slow growth make it difficult to start new businesses. These all work in favor of established wealth. The social costs of high interest rates and high unemployment fall most heavily on the poor.

Tax Policy

In the ‘New Economics’ of Keynes, there is the concept of regulating consumer demand through raising or lowering taxes. Taxes should be lowered to stimulate demand when overall demand is sluggish and should be raised to reduce demand when overall demand is excessive.

Lowering taxes is popular. Raising taxes, on the other hand, is not! It is particularly unpopular when consumers are feeling the pinch of rising prices. Such a policy is therefore almost impossible to administer successfully.

Budgetary Policy

A third method used in attempting to stabilize prices is budgetary policy; i.e., the regulation of government expenditures. Budgetary and tax policy are sometimes lumped together under a single heading entitled fiscal policy.

Unfortunately, one of the few areas of the federal budget that is readily subject to budgetary control is research and development expenditures. Research monies are usually among the first casualties of any serious budget-cutting attempts. Thus, new technology, that is the long-term source of most productivity gains, is typically curtailed at the very beginning of any program of fiscal restraint.

The reduction of government expenditures as a method for combating inflation is often self-defeating. For example, cuts in poverty programs often mean that potential taxpayers are thrown into welfare or, worse, into a life of crime. Hence reductions in government expenditures may actually contribute more to the overall cause of inflation than to its prevention.

Time for a Change

None of the current inflation-control techniques are capable of dealing with cost-push inflation. They all attempt to close the gap between wage increases and productivity increases by holding down wages.

Today Western civilization is in a state of arrested progress. We are being tested. If the Western nations cannot solve the basic problem of stable economic progress, other nations, perhaps in the Far East, the mid-East, or Africa, eventually will.

Inflation will recede whenever we produce as much as, or more than, we consume. That this can be done by increasing productivity, as well as by reducing wages, seems clear. The secret lies in increased investment.

IX: A Formula for Price Stability

One of the reasons that increasing productivity through investment spending has never been seriously considered as a cure for inflation is because of the problem of the investment payback delay.

If NMF investment is ever to be practical on a large scale, it will be necessary to complement that investment with a savings program of sufficient magnitude to prevent increased investment from producing any net increase in demand. Savings is the key to increasing investment without inflation. Savings takes money out of circulation and reduces both demand and consumption. Savings, of course, is only deferred spending.

The Demand Regulation Policy (DRP) is designed to accomplish this purpose. It consists of two parts: one that deals with excess demand and the other deals with insufficient demand.

Part 1: Dealing with Excess Demand

The DRP would effectively balance the money equation by taking out of circulation about as much as the NMF put in through its investment policies. It would reduce consumer purchasing power during periods of inflation by diverting some fraction of consumer income into savings bonds, held in escrow until increased supply resulted from increased productivity.

The savings-bond money would be returned to the same individuals from whom it was withheld. This would be far more palatable to the public than tax increases because income would not actually be lost, but only temporarily converted into savings.

The technique of indexing interest rates on savings to the inflation rate has been advocated for use in the United States by the conservative economist Milton Friedman (‘There’s No Such Thing As a Free Lunch’) for years.

Part 2: Dealing with Insufficient Demand

Any tendency for aggregate prices to decline due to excess supply, the DRP would encourage redemption of the special bonds by declaring DRP bonds mature earlier than normal.

The DRP could also maintain demand in equilibrium with supply by directing the Federal Reserve Bank to create new money and distribute it directly to the public in the form of bonus payments.

To some, the notion of printing money and distributing it directly to the public seems an impossible utopian fantasy. To others, it simply sounds like fiscal irresponsibility. It is neither. Maintaining demand in equilibrium with supply ensures that prices will remain stable which is an eminently responsible economic goal.

There is nothing particularly revolutionary about distributing newly created money to the public. That is exactly what happens whenever the government shows a budget deficit. In order to finance deficit spending, the government borrows money by selling bonds. Printing bonds is not essentially different from printing money.

People tend to spend more than 90% of their disposable income on goods and services. This means that giving money to people to spend would create almost exactly the same number of jobs as giving money to the government to spend.

There are several reasons why distributing new money by direct cash bonuses would be better than the present method of deficit government spending:

  1. The distribution of benefits would be more equitable.
  2. Fluctuations would affect everyone equally and would be clearly and simply related to consumer prices.
  3. Direct cash bonuses could easily be adjusted on a monthly basis so that the monthly variation would be quite small hence no severe hardships would be experienced when bonuses were cut.

The administration of the (politically sensitive) National Mutual Fund would be independent from that of the Demand Regulation Policy (which should be isolated from immediate political pressures).

The classical economist may argue that this violates the free market. Classically, the capital market sets interest rates that make savings attractive and that is what provides the capital for investment. But historically, this mechanism has proven itself disastrously inadequate time and time again.

The United States economy is operating nowhere near its full capacity today (capital equipment is typically operated only 40 hours per week), and probably never has except for a few years during World War II.

Making investment independent of the propensity to save (i.e., making it possible for investment to be increased without deferring present consumption) is a revolution in economic thought. It frees the industrial system from the artificial constraints of the classical capital markets and makes it possible for production to be increased up to the maximum rate physically and technologically possible. Working together, the NMF and the DRP would enable society to invest freely in whatever enterprises were deemed to be both profitable and socially beneficial.

Working together, the NMF and the DRP could release modern technology to fulfil its potential for benefiting mankind.

 

X: A Department of Science and Technology

Although the National Mutual Fund would increase the production of wealth, there are many segments of the economy that require much more than just investment. Areas of the economy most in need of improvement do not typically produce high profits. In general, such things as public transportation, housing, and health services are not sectors of high growth based on automation.

Public transportation and low-cost housing are money-losing businesses today and will remain so only so long as these areas remain technologically backward. If new technology were introduced into these areas, they would develop many profitable opportunities. Technology in the field of housing construction has been stagnant for several centuries. Alvin Toffler, in his book ‘Future Shock’, describes housing as a preindustrial craft. The basic structure of the housing industry is modeled after the 16th century system of craft guilds. Houses are still built by itinerate artisans who migrate from one job to the next. Modern methods of computer-aided design and automated assembly of houses are strictly in the realm of EXPO exhibits and experimental demonstrations.

There is nothing inherently unprofitable in building houses or transporting people. But until these industries find ways to reduce costs and improve their products and services, additional investment will simply produce more overpriced housing of inferior quality and additional trains that no one wants to ride. When businesses are technologically stagnant, increased investment merely enables them to lose money faster.

Profits are to be found in greater productive efficiency.

A Role for the Federal Government

Conducting such a research program is the proper role of the federal government. There are several reasons why this is so.

  • Much of the research that needs to be done is expensive and of a high-risk nature.
  • There is very little incentive for private industry to go into sectors that are most in need of research.
  • The benefits from an invention to society typically exceed the profits received by the innovative company. For example, the benefits to society of the transistor, or penicillin, or even Scotch tape far exceed the profits to the companies that originally developed these products.

Unfortunately, the federal government has never had a consistent policy for developing socially beneficial technology. Little money is spent on technological development in other areas of social need.

Science at the Cabinet Level

The United States Government should establish a Department of Science and Technology to conduct and encourage research into areas of technology beneficial to the society as a whole.

A meeting of the National Academy of Engineers concluded that socially beneficial technology was woefully underfunded in this country and as a result productivity was lagging far below what could be achieved.

A Department of Science and Technology would remedy these shortcomings.

Socially beneficial industries, that presently are technologically stagnant, would become profitable investment opportunities. These could then be exploited by both NMF and private capital. Thus, the Department of Science and Technology would provide technological development, the NMF would provide capital resources, and the DRP economic stability. Working together, these three agencies would produce economic prosperity and human well-being far beyond what is now considered possible.

 

XI: Peoples’ Capitalism in a Finite World

The NMF and Limits to Growth

Planet Earth is clearly finite. There are limits to growth. Affluence has historically led to increased levels of certain kinds of pollution and wasteful consumption of natural resources.

If the result of the NMF were to simply increase the disposable income of the entire population so that everyone could engage in wasteful consumption then the NMF would quickly lead to worldwide catastrophe.

This is a problem of considerable magnitude since it pits the interests of the ‘have’ nations against the ‘have-nots.’ How can persons living in air-conditioned houses and driving gas-guzzling automobiles communicate their concern about the environment to people whose children are starving.

This problem is virtually insolvable within the constraints of classical economics.

The path of classical industrialization is extremely costly both in terms of physical and human resources.

An Alternative to Urbanization

Classical industrialization requires urbanization.

Automatic robot factories could be built in under-developed countries near sources of energy, raw materials. There would be no need to uproot the population from the countryside and concentrate it in cities. This would allow economic development without the social upheaval that ordinarily accompanies industrialization.

Peoples’ Capitalism thus offers a means by which non-industrialized countries might completely leapfrog the first industrial revolution.

Continued Growth and the Environment

Peoples’ Capitalism could also reduce the environmental impact of continued economic growth in industrialized countries.

Distribution of income through public dividends would make income from high technology industries available to rural residents as well as urban. This would reduce incentives for the rural poor to migrate to city slums in search of high-paying employment or, as it often turns out, of more liberal welfare payments.

NMF income could free people from the tyrannies of mechanization and allow them to live more by their own internal rhythms. Lifestyles quite likely would move closer to nature, as people divorced themselves and their families from the congestion and frustrations of the industrialized world.

Through instrumentality such as the NMF, increased affluence would not be incompatible with the environmental constraints of a finite planet. Peoples’ Capitalism thus offers hope for a resolution of the fundamental conflict between the interests of the ‘have’ and the ‘have-not’ peoples that today represents such a strong potential threat to world stability.

 

XII: From Throughput to Storehouse Economics

The purpose of an economic system should not be merely to produce clothing, food, and houses, but to clothe, feed, and house people. Human beings are, after all, what the economic system was created to serve, not vice versa.

Modern industrialized economies do not make the satisfaction of human needs a number-one priority. Income is derived from wages and salaries and, as a result, every effort must be made to assure that there is never any shortage of jobs. Products must wear out or be consumed so that they may be replaced. Styles must be changed so that whatever does not wear out is discarded anyway. People must be dissatisfied so that they want more. Resources must be exploited. Growth is essential.

But on spaceship Earth, where resources are limited and pollution is a serious threat, an appropriate economic system would be one that concentrated on the satisfaction of human needs rather than on the rate of production and consumption.

The key to making such a basic shift is the elimination of the virtually exclusive role of wages and salaries in the income distribution system. So long as job employment is a prerequisite to obtaining income, any significant shift from throughput to storehouse economics would create chaos. If products were made more durable, if mass advertising of trivia were eliminated, and if all unnecessary jobs were discontinued, unemployment would soar, recession would occur, and millions would be without income altogether. Throughput economics depends on continuous growth to create enough jobs to keep everyone employed. Storehouse economics would eliminate unnecessary jobs and seek to satisfy human needs with as little effort and expenditure of resources and energy as possible.

The NMF and Storehouse Economics

The NMF would provide the mechanisms to make the shift from throughput to storehouse economics. As dividends increased, many persons would voluntarily leave the labor force, many would transfer to more satisfying occupations. Unnecessary jobs could be eliminated with no hardship.

Whilst not all industries could be automated, robot factories would not require large numbers of employees to be concentrated within commuting distance, reducing commuting, congestion and pollution. People would be freer to live wherever they wished, adopting less resource-consuming lifestyles.

Robot factories would cope with fluctuating production requirements without causing labor dislocations so there would be no need to artificially stimulate additional consumption through mass-media advertising, style changes, or planned obsolescence.

If cars and appliances were made more durable, then production would fall because few people would need to buy new ones. This would reduce NMF profits and, hence, public dividends. But it would at the same time increase DRP payments to prevent a decline in the price index. Thus, a

Reductions in NMF income would be more than compensated by the combination of increased DRP payments and more durable products at a constant price, leading to a more self-sufficient, less resource-consuming lifestyles.

Once NMF dividends and DRP bonuses became a substantial fraction of the average family’s income, conservation would become as economically beneficial as new development; restoration would increase incomes as much as new construction.

Development for its own sake would no longer completely dominate the economy.

Attitudinal changes towards the environment are counter to the basic goals of growth and exploitation that are so fundamental to the present economic system. The NMF and DRP could provide the institutional framework under which a shift from throughput to storehouse economics could occur without severe economic dislocations, increasing the personal financial security of every individual. By this means the NMF and DRP could reconcile the environmental goals of conservation and preservation with legitimate desires of human beings everywhere for participation in the good life.

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