In yesterday’s blog, we posted the portion of Grosscup’s
“long lost” speech that looked at the two primary types of barriers to
widespread capital ownership: 1) Those that deny the right of ownership to ordinary people, and 2) Those that deny the rights of ownership to ordinary people —
two very different, if closely related things, and very important.
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| Judge Grosscup |
Grosscup, however, made a serious mistake in his analysis:
he approached it from a past savings orientation. Thus, he would have prohibited the issuance
of new shares except when there was already “enterprise growth” existing to
back the shares.
This is not an unsolvable problem. It is, in fact, very easily resolved. As a lawyer, in fact, Grosscup should have
seen the answer right away — it’s in the law of contracts. Under “modern” methods of finance (so
“modern” that they’ve been around for well over ten thousand years), it is
possible — even preferable — to form new capital using the present value of the
anticipated future stream of income embodied in a contract. This contract (called a “bill of exchange”)
enables companies with “feasible capital projects” (meaning they pay for
themselves out of their own profits) to grow without having to retain earnings
— earnings can be paid out to the people to whom they belong: the shareholders.
As we pointed out, this is nothing new. People have financed capital projects this
way from the dawn of civilization. The
vast bulk of documents surviving from the ancient world are not great literary
epics, but are financial instruments such as mortgages, bills of exchange, bank
drafts (we call them “bank drafts” because that is the modern term, not because
they called something a “bank” ten thousand years ago), promissory notes,
letters of credit, and so on.
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| Forming the Bank of England in 1694 |
Things made a great leap forward with the invention of
central banking in the seventeenth century.
Contrary to popular opinion and conspiracy thinking, central banks were
not invented to fund government and usurp the government’s power to create
money.
First, governments never legitimately had the power to
create money. They had the power to
regulate the standard of the currency and issue currency — not the same thing
as creating money. It is impossible,
therefore, for central banks to usurp a power that governments never properly
had in the first place.
Second, and more important in the greater scheme of things,
central banks were invented for specific purposes, none of which is funding
government: 1) provide adequate liquidity to the private sector 2) in the form
of an elastic, asset-backed currency with a stable and uniform value for 3)
qualified capital projects. Regulating
clearinghouse operations also legitimately comes under a central bank.
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Louis Kelso’s breakthrough was to tie the money creation
powers of a commercial and central banking system to the need for expanded
capital ownership, thereby emancipating humanity from “the slavery of savings”
that presumably dictated either that only the rich could as a rule own new
capital, or that “ownership” must become meaningless in a State-controlled
economy.
Had Grosscup been able to see into the future, he would have
seen how to realize his vision, compatible with the “Five for the Family” campaign,
that —
Workers Should, If Possible, Be Part Owners
One thing more in the line of structural principles. The
first duty of every enterprise, incorporated or private, is to secure to the
capital invested its eventual safe return, while paying on it from time to
time, after payment of operating expenses, such fair returns for its use as the
nature of the venture suggests. That is what capital always has the right to
ask. But this having been accomplished, there are some enterprises now that
take labor and management into partnership in the further disposition of the
fruits of success. That kind of partnership is not compulsory, and is not
usual. I would not make it compulsory, but I would try to infuse into the corporation
of the future an incentive and a spirit that would make it more usual — that
would give to the workman, the clerk, the employee of every kind an opportunity
to individually share in the growth of the enterprise to which he is attached.
This is not a mere philanthropic dream. The spirit will come when the employee
feels that what he gets he gets as a matter of contract, not as a matter of
gift, and is as secure therein as is the corresponding interest of the
employer; and when the employer wakes up ‘to the truth that as it is not by
bread alone that men live, it is not for bread alone that men put forth their
best work. And the incentive may be supplied by the application of those
well-known powers of taxation that instead of being wholly directed toward
transferring to the government a part of the success of the successful, could
be employed to bring about a wider diffusion of the permanent fruits of success
among those who by their labor had contributed to the success. This is not socialism.
It may have the philanthropic spirit of socialism, but in its end and aim it is
the antidote of socialism — in any long look ahead the only antidote on which
individualism can securely rely.
Do not misunderstand me — there is no way known, before men
or under Heaven, to legislate men into the possession of anything. All we can
do is to open the door — to hold out the opportunity. But that done — honestly,
effectively done — I rely on the instincts of the American to do the rest.
I stood once on a battleship, marveling at what the
lightnings did. They lifted and lowered the anchor; they fan messages from the
pilot house to the engine room; they lifted the ammunition from the magazine to
the guns; they loaded the guns, leveled them to the mark aimed at, fired them;
they lighted the ship when in friendly waters and darkened her when in the
waters of the enemy; without a moment’s intermission they swept the seas for a
thousand miles around in search of whatever tidings the circle of a thousand
miles might have; and through it all they remained as free as the lightnings
that play in the summer clouds. The genius of man has not harnessed the
lightnings; they work out his task only because the genius of man has given
them the material agency, the open door through which to work out their own
inherent instincts.
* * * *
That last paragraph sounds an awful lot like social justice. On Monday we’ll have the final installment of Grosscup’s “long
lost” speech.
