Originally published at http://rio20.net/en/documentos/ethics-in-concordian-economics/
Documentos
February 19 2012
Ethics in Concordian economics
87 Middle Street
The current crisis in economic affairs
must be due to many factors. But in a fundamental sense it is due to
structural and conceptual weaknesses contained in Keynes' model of the economic
system.
Distributive Justice. Participation in production is not enough. Issues of fairness in the distribution of income and wealth also need to be addressed. Rooted in the Jewish tradition of the jubilee, the doctrine of distributive justice spans the arch from consideration of grace from overpowering financial debt to perennial vigilance against monopolies. The keystone in the construction of distributive justice during the Middle Ages was the status of economic “superfluities” as legally belonging to the poor. The Church collected the surplus and made it available to the poor. No questions asked—urged St. John Chrysostom.
Commutative Justice. The definition of just price as any competitive price, first reached by the Doctors of the Church, forms the foundation of commutative justice. The doctrine covers condemnation of practices that run contrary to doctrine as well as encouragement of practices that foster competition in the market. Usury, defined as the exchange of money loaned for excessive interest payments, an issue very much alive in the Muslim tradition, used to be a primary target of the moral wrath of the Church and society at large. No space was left open to chance—hence the practice of guilds as administrators of fair prices, quantity, and quality was wholeheartedly embraced by the Church and society at large. In commutative justice one finds the moral justification for much contemporary anti-trust legislation.
Conclusion
Ethics in Concordian economics
Carmine Gorga, Ph.D.
February 2012
Gloucester, MA 01930
978.283.5926 v/f
978.283.4936
Abstract
Ethics enters the structure of Concordian economics at three
crucial stages, not surreptitiously in the background, but explicitly and
forcefully. Ethics is a fundamental construct of the theory of distribution of
ownership rights and this theory lies at the very core of Concordian economic
theory. Next stage: Concordian economic policy is guided by the
theory of economic justice. Ethics, finally, enters into Concordian economics in
the analysis of daily practices, with emphasis on the play between economic
rights and economic responsibilities and focus on the methods
of accumulation of capital.
Acknowledgments
This paper is uniquely due to several maieutic
interventions, truly beyond the call of duty, by Dr. Wilfred Dolfsma. I also
would like to acknowledge a clarification brought to this paper by Godfrey
Dunkley. If this paper has become a cogent presentation less exposed to
potential debilitating criticism of single points, it is due to innumerable
constructive suggestions by two referees of Forum. A more
detailed background for this paper is contained in “The Economics of
Jubilation”, an unpublished monograph that has been well received by such a
diverse audience as Dr. Michael E. Brady, Dr. John C. Rao, Professor William J.
Baumol, and Professor Roger H. Gordon. That work, in turn, is based on a framework
of analysis which was greatly assisted for 27 years by Professor Franco
Modigliani and 21 years by Professor Meyer L. Burstein, among others.
Short Bio
Carmine Gorga, a
former Fulbright Scholar, is president of The Somist Institute, a research organization
in Gloucester , Mass. Southern Italy in 1935. For more
details, please see www.carmine-gorga.us.
Introduction
Ethics appears explicitly at three crucial stages of the
structure of Concordian economics. Ethics is inherent in the theory
of distribution of ownership rights over financial as well as real
resources and this theory is no longer an afterthought to be dealt with at some
mythical ideal future state of the economic system, but is located as the core
of the economic process: Hence, no action is ever recognized in Concordian
economics that does not involve the full force of the theory of distribution of
values of ownership rights. In Concordian economics, ethics also enters the economic
discourse at the moment of transition from economic theory to the formulation
of economic policy: Economic policy is no longer rooted into the political and ideological
whims of the moment; economic policy is guided by the age-old theory of
economic justice. Ethics, finally, enters into Concordian economics in
the analysis of daily practices of economic agents who are endowed with the
armor of economic rights and responsibilities and focuses its attention on the processes
of accumulation of capital.
Accordingly, the paper is divided into three parts.
Part I deals with ethics in Concordian economic theory. Part
II deals with ethics in Concordian economic policy. And Part III deals with ethics
in Concordian economic practices.
Part I
Ethics in Concordian economic theory
Concordian economic theory has its roots into the
mathematical and logical consequences of inserting an age-old word, hoarding,
into the structure of Keynes’ model of the economic system (Keynes, 1936: 63). This is the model on which all mainstream,
Austrian, and even heterodox theory is built. The initial result of these
operations, a result that can be easily duplicated by any willing researcher,
is the transformation of the structure of that model, which, in honor of the
genius of Keynes, I have named the Revised Keynes Model*. A cautionary word: substantively,
the two models represent entirely different intellectual worlds.
Prior to its full presentation in Gorga (2002 and 2010), the
new model was reported in Gorga (1982). It was republished with some
explanatory notes in Gorga (2008), and is reproduced with minor editorial
changes and an addendum—on ethics and the theory of distribution of ownership
rights—in the following paragraphs, which, it is worth to emphasize, contain
statements that are as true today as they were in 1982 or 2008.
The current crisis in economic affairs
must be due to many factors. But in a fundamental sense it is due to
structural and conceptual weaknesses contained in Keynes' model of the economic
system.
The proposition that S = I is not an equivalence, as it must
for it to be formally valid**. The terms are neither reflexive nor symmetric
nor transitive. Saving has the potential of assuming 100,000 meanings. And, by
necessity, so does Investment. Consumption means spending; but in contemporary
economics this meaning is arbitrarily cut off at spending on consumer goods.
Keynes' model must be revised.
Manipulating the original model, one obtains:
Income = Saving +
Consumption (1)
Investment = Income -
Saving
(2)
Investment =
Consumption.
(3)
The meaning of terms is different in this model. Saving means all nonproductive wealth.
This term becomes clearer if it is substituted with the word
"Hoarding" ***. Investment means
all productive wealth. And Consumption
means any expenditure of money (or other wealth).
The relationship between Saving (or better, Hoarding) and Investment
is changed from equality to complementarity (originally erroneously identified
as inverse proportionality).
Equation (3) becomes a formally valid equivalence by
inserting in it the theory of Distribution, and substituting the word
Investment with its old meaning of Production. One thus obtains:
Production =
Distribution = Consumption ****.
NOTES (Included in the 2008 publication)
* Copyrighted 1979, 2002
** Using the looking glass of S = I, unable to distinguish
saving from investment, the economics profession has fallen through the rabbit
hole of “Adam Smith’s Fallacy”. This is the assumption that private greed turns
out to be public good. This is a world in which—as today’s events confirm and
Keynes pointed out—“nothing is clear and everything is possible”.
*** Through the looking glass of hoarding, the world looks
totally different. Strangely, later, to my unending surprise I had to discover
that that is the lens constantly used from Moses, through Jesus of the Parable
of the Talents, to Locke. Adam Smith offered a discontinuity in this millennial
tradition.
**** In new notation, this equivalence reads:
Production = Distribution = Consumption.
Graphically, this equivalence can be represented as:
For the full unfolding of this model into the structure of
Concordian economic theory, see The Economic Process: An Instantaneous
Non-Newtonian Picture (University Press of America, 2002 and 2010)
and “The Economics of Jubilation:
Blinking Adam’s Fallacy Away” (in Tavidze, 2010, Ch. 1).
An addendum on ethics
and the theory of distribution of the values of ownership rights. Perhaps
the relationship between ethics and the theory of distribution ought to be made
more explicitly clear. Even though ethics enters into economics at each and
every moment of its development, the necessary presence of ethics is nowhere as
clear as in the distribution of ownership rights. In Part III we shall make
this relation emphatically clear; there we shall also introduce the fundamental
distinction between ownership of property rights and ownership of economic
rights (see Gorga 1999). For the time being suffice it to say that ethics in economics
converges into the application of the theory of distribution of ownership
rights and diffuses from there into every corner of daily practices of economics.
When the producer creates real wealth, since the law abhors
a vacuum, an ownership right is automatically created; and, since the law is
supposed to be rooted in ethics, the values of ownership rights are represented
by financial instruments that can be newly created by financiers and are supposed
to be created in accordance with the real value of the wealth created. Let us
specify: the producer creates a chair worth $200; the value of the
corresponding ownership right ought to be worth $200. The financial note to
denote ownership of this title ought also to be worth $200. This is the type of
values among economic, financial, and legal relationships that the theory of
creation of ownership rights obliges us to establish. In simplified fashion,
this is how the values of the economic process are created and accounted for at
each moment in time. The entrepreneur sets up a joint production with the
accountant, the lawyer, and the financier. The financier transforms the static
legal note of ownership into a transferable financial instrument.
This is how values of ownership rights are created in theory:
how are they distributed? Following customary practical applications of the
theory of economic justice, the value of the newly created real wealth and
newly created financial instruments is automatically apportioned among the
present owners of existing wealth. In Part III we shall enter more deeply into
this process by distinguishing property rights from economic rights.
Nor does the story finish there. With every market exchange,
there is an invisible transfer of ownership rights among buyers and sellers:
ownership rights to goods and services are transferred from producers to consumers,
and money—or other financial instruments representing ownership of financial wealth—is
transferred from consumers to producers.
These legal, financial, and economic relationships are analytically
taken into account in the theory of Concordian economics; hence, one can easily
observe whether these relationships are carried forward in an ethical or
unethical manner. The legal and financial accounting is one thing; the judgment
of the ethics of the operations is necessarily another level of abstraction. Yet,
the ethical judgment is neither disjointed nor arbitrary: it is synchronous and
objective.
Part II
Ethics in Concordian economic policy
In Concordian economics each and every policy and each and
every activity is advanced and judged in accordance with the dictates of the age-old
construction of the theory of economic justice, a theory that today is obscured
by the prevalence of the undefined and undefinable doctrine of Social Justice. Interestingly,
while nearly everyone talks of Social Justice these days, almost no one talks
of economic justice.
Needless to say, this dichotomy is a synthetic manifestation
of a major dysfunction in economic policy today—worldwide.
But why is Social Justice undefined and undefinable? Long
story. Its fundamental flaw is the disjunction of rights from responsibilities.
Each and every program of Social Justice wallows in the la-la land of the
pursuit of happiness—happiness bought on the cheap. Social Justice attributes
rights to some and responsibilities to others.
It is the “individual” person who has all the rights—and his
and her rights are multiplying daily nowadays; the “government” has all the
responsibilities.
In a robust program of economic justice, an economic policy
program advocated by Concordian economics, rights and responsibilities are located
in the same economic entity—constantly.
(A revelation has occurred to me just at this writing: No
wonder feeble minds with weak spines, exposed to Concordian economics, fade
away like comets; while sturdy minds, once attracted into the orbit of
Concordian economics, stay with it forever, forever contributing and forever wanting
to know more about it.)
The structure of the theory of economic justice, which,
although not practiced, can still be read in the documents of the Catholic
Church, was presented in Gorga (2007) and is reproduced in the following
paragraphs with two additions: one concerns the enlarging, whenever necessary,
the focus of observation from the Church to Concordian economics and to society
as a whole; the other concerns making explicit the relationship between
Concordian economic theory and Concordian economic policy..
Underlying
the doctrine of economic justice is the Aristotelian/Thomistic division of
justice into political and economic justice. The principles of distributive and
commutative (“exchange”) justice are part of the Church's ancestral patrimony.
Since Rerum Novarum (# 34 and 46), the Church has been
adding to them the plank of participative justice, offering thus a full-fledged
theory of economic justice.
The three
planks of the theory of economic justice are related to the tripartite division
of classical economics into production, distribution, and consumption. Simply,
people who participate in production are empowered to participate in the
distribution of wealth; and owners are free to exchange their share for other
goods and services, invest it anew in the process of wealth creation, consume
it—or give it to charitable purposes.
Anchored
in morality, the theory of economic justice establishes the rules, the
invisible threads—peculiar to each culture and age—that connect us by mutual
rights and responsibilities (RN# 2, 10, 12, 13, 14, 15, 25, 37, 53, 58).
These rules transform wealth from a material entity into a force that affects
the quality of life of people and society, because property is indissolubly
linked to life and liberty.
The Content of Economic Justice
The
Doctors of the Church defined the principles of distributive and commutative
justice. They left the plank of participative justice unspoken, for reasons to
become apparent forthwith.
Participative
Justice. Owning a farm was for ages the main way to participate in
economic life; and, since in the Jewish, Greek, Roman, Christian, and Muslim
tradition most studies were done by and for landowners, the issue of
participative justice did not arise early on. Landowners did not necessarily
till the land—just as stockholders do not necessarily sit at the assembly line.
Over the centuries, landowners established relationships with tenants, who did
the tilling and received an agreed-upon proportion of the product. The
dispossessed had a right of access to the commons, through which they became
landowners in fact, if not in title.
With the
enclosure of the commons, the economic condition of Europe
changed radically. And the need to address issues of participative justice
eventually became explicit because, as Pope John Paul II maintained in Centesimus Annus (# 33-35), either people and nations
participate in the economic process or they are marginalized—are made poor and
placed at the margins of society.
One
participates in an enterprise through sole proprietorship, partnership,
membership in a cooperative, or holding stock in an incorporated business.
These are forms of private enterprise traditionally fostered by the Church and
acknowledged by society at large.
Workers
do not participate in the life of the corporation for which they work because,
legally, they are outside contractors: They offer their labor services and receive
wages. The traditional support of the Church and society at large for unions is
due to the recognition that labor unions tend to equalize the relationship
between the individual worker and the powerful combines that have been formed
during the last two centuries. But unions do not provide final protection.
Hence the challenge to transform human beings into owners, launched by Leo XIII
(RN # 46), represents the
most living and vital portion of the Church—and society at large—moral
engagement with the socio-economic structures of contemporary society.
Distributive Justice. Participation in production is not enough. Issues of fairness in the distribution of income and wealth also need to be addressed. Rooted in the Jewish tradition of the jubilee, the doctrine of distributive justice spans the arch from consideration of grace from overpowering financial debt to perennial vigilance against monopolies. The keystone in the construction of distributive justice during the Middle Ages was the status of economic “superfluities” as legally belonging to the poor. The Church collected the surplus and made it available to the poor. No questions asked—urged St. John Chrysostom.
Commutative Justice. The definition of just price as any competitive price, first reached by the Doctors of the Church, forms the foundation of commutative justice. The doctrine covers condemnation of practices that run contrary to doctrine as well as encouragement of practices that foster competition in the market. Usury, defined as the exchange of money loaned for excessive interest payments, an issue very much alive in the Muslim tradition, used to be a primary target of the moral wrath of the Church and society at large. No space was left open to chance—hence the practice of guilds as administrators of fair prices, quantity, and quality was wholeheartedly embraced by the Church and society at large. In commutative justice one finds the moral justification for much contemporary anti-trust legislation.
The attentive reader will have
noticed the self-similarity of the structure of the economic process and the
structure of economic justice. There is a one to one correspondence between participative
justice and production; distributive justice and distribution of ownership
rights; commutative justice and consumption or expenditure of financial
resources. One looks at the world of economics from the point of view economic
theory, the other looks at the world of economics from the point of view of economic
policy.
This is
the structure of economic justice in bare bones: Does an economic activity—or
more generally, an economic policy—offer fair participation in production,
distribution, and exchange of wealth? Then it is just. Technically, if prices
of factors of production are set unfairly high, participation becomes
prohibitive; if excessive values are distributed to some, these factors become
overpriced and others underpriced; then the basis for objective evaluation of
fair prices in the exchange of wealth vanishes. Adumbrated in these positions
is the reality that unfair prices do not lead to efficiency.
Justice and Charity
Through
comprehensive application of the theory of economic justice, Concordian
economics treats all members of society alike and, by protecting everyone, protects
especially the poor who are otherwise abandoned to themselves and absent from
the table where vital decisions are taken by the powerful and the efficient.
This effect suggests the need for a clear distinction.
The call
for justice is not a call for charity. While justice, according to St. Thomas
Aquinas, exercises a practical (cardinal) virtue, charity exercises a
theological virtue. The need for charity generally signals a failure of
justice. More, in Quadragesimo
Anno (# 4) Pope Pius XI
issued a firm injunction against using charity ”to veil the violation of
justice”.
Indeed,
the full exercise of economic justice is essential to the success of charity.
Only if its need is rather miniscule, the call for economic charity can be
fulfilled. We are not saints. Charity, high as it is in the moral sphere, is a
last resort in the economic sphere.
Part III
Ethics in Concordian economic practices
Each and every action in Concordian economics is judged in
accordance with the following mental apparatus, which was presented in Gorga
(2009) and is reproduced in the following paragraphs.
Lack of an Existing Tool Kit
“High” mainstream economic theory is silent on the practices
of economics. This neglect is not due to chance; rather, it is due to the
assumption that, since economic practices are determined by society at large
and are supposedly controlled by allied social disciplines, they lie outside
the economist's field of expertise. Indeed, having abandoned the field to
lawyers, and ethicists, and philosophers, and sociologists, and political
scientists, mainstream economists have become passive takers of a proposition
that lies at the very core of the issue. This is the proposition that present
ownership rights provide practical rules for the distribution of future ownership
rights. The proposition has long legs, because it determines the pattern of
future distribution of income and wealth. Economists observe every day the
manifold negative consequences of this belief, but feel powerless to even
address the issues. This is another juncture at which, by taking themselves out
of the discussion, economists are threatening to make economics a socially
irrelevant discipline.
To regain their power, economists have only to look at it as
an economic, rather than a legal, political, or moral issue. If they do that,
they discover that their assumptions are faulty. The error is elementary. The
reasoning is circular. In order to enter and to break this circular form of
argumentation, namely that present property rights determine future property
rights, economists need to remember that property rights are pieces of paper: a
piece of paper does not—and cannot—create real wealth. It is not even the exercise of
property rights that creates real wealth. Property rights are a bundle of
rights that link human beings to things. Their current owners may wish as hard
as they can, it is not in the nature of property rights to create wealth.
It is not the use of property rights, but
the use of property—namely, the use of real goods and services—that
creates new wealth. The distinction is fundamental. The discussion is shifted
away from the abstract legal field on to a concrete field. The discussion is
focused on the observation of the economic reality. The use of real goods and
services to create new wealth is infused, not by property rights, but by the
exercise of economic power. To an economic power corresponds an economic right.
As specified below, temporally, logically, economically, and legally, economic
rights precede property rights. Economic rights are the generators, the fathers
and the mothers, of property rights. The nature of economic rights becomes
clear when the two rights, economic rights and property rights, are observed as
separate and distinct entities, and then both rights are placed in
contraposition with entitlements. The three terms are often used as synonyms.
They are not. As specified in Gorga (1999),
the use of real goods and services—that
creates new wealth. The distinction is fundamental. The discussion is shifted
away from the abstract legal field on to a concrete field. The discussion is
focused on the observation of the economic reality. The use of real goods and
services to create new wealth is infused, not by property rights, but by the
exercise of economic power. To an economic power corresponds an economic right.
As specified below, temporally, logically, economically, and legally, economic
rights precede property rights. Economic rights are the generators, the fathers
and the mothers, of property rights. The nature of economic rights becomes
clear when the two rights, economic rights and property rights, are observed as
separate and distinct entities, and then both rights are placed in
contraposition with entitlements. The three terms are often used as synonyms.
They are not. As specified in Gorga (1999),
First, the content of these three entities is different. The
object of property rights are marketable things, tangible or
intangible things such as material goods and services. The object of
entitlements are human needs, from food to shelter to health.
The object of economic rights are economic needs. Second, the legal
form of these three entities is different. Property rights are concrete
legal titles over existing wealth; economic rights are abstract
legal claims over future wealth; and entitlements are moral claims
on wealth that legally belong to others. Finally, the quantity that they
measure is variable. While both property rights and entitlements relate to
existing wealth, and therefore a necessarily finite quantity, economic rights
relate to future wealth, an unknown and elastic—if not a potentially infinite—quantity.
Economically, and consequently legally, real wealth is
created by the exercise of economic rights—indeed, economic rights and economic
responsibilities, as we shall see. Hence economists are fully entitled to
extend their competence to the field of economic rights and economic
responsibilities. Economists will discover that the field is wholly within
their range of expertise and responsibility. At the end of this journey,
economists shall be able to offer to lawyers, ethicists, and philosophers, as
well as political scientists and politicians, this proposition: Future
ownership rights are determined, not by property rights, but by economic rights—indeed,
they are determined by economic rights and economic responsibilities. Thus the
closed circuit that at present imprisons economic theory, the proposition that
property rights beget property rights, is broken. Economists are in charge of
economic issues.
New Tools to Control Economic Practices
The transmission belt that carries principles of economic
justice into the complexity of modern economic life, and shapes objective
guidelines for the formulation and evaluation of just economic policies is the
presence of economic rights and economic responsibilities (ERs&ERs), both
lodged in the same person at the same time. These two conditions need to be
clarified. Economic rights and responsibilities need to be lodged into the same
person, otherwise one does not follow an economic discourse in which everything
is strictly related to everything else; rather, one follows escapism: if my
father, my uncle, or the state is responsible for my welfare, we are lost, as
Keynes used to say, “in a haze where nothing is clear and everything is
possible” (Keynes, 1936: 292). The second condition is equally important. Economic
rights are rooted, not in abstract morality, but in our own concrete economic
responsibilities (cf. Gorga, 1999).
ERs&ERs come forward in response to the well-known
requirements of the factors of production identified by Classical economists as
land, capital, and labor—with the addition of a modern distinction between
financial and physical capital. (This is a Schumpeterian perspective.) Guided
by these economic needs, our focus of attention is on the satisfaction of the
plank of participative justice; successive iterations that are mostly skipped
in this presentation would reveal that the same rights and responsibilities
satisfy also the requirements of the planks of distributive justice and
commutative justice. A minimal set of economic rights and corresponding
responsibilities is as follows:
1. We all have the right of access to land and
natural resources. This is a natural right. It belongs to us just in
virtue of our humanness. Land and natural resources are our original commons.
They belong to us all. This is an essential right, because without the
possibility of exercising it, we are deprived of the possibility of
participating in the economic process. And without this participation, we are
marginalized; we are made dependent on the good will of others. The most direct
way of securing this right in the complexity of the modern world is neither
through squatting nor through expropriation; rather, it is through the exercise
of the responsibility to pay taxes for the exclusive use of
those resources that are under our command—with a corresponding reduction of
taxes on buildings and man-made improvements on the land. The exercise of the
responsibility to pay taxes on land has a double function: It secures our right
to the use of the resources that are under our command and it also makes room
for others to access land and natural resources that they need. Land taxation
is the economic bridge between hoarding, namely the accumulation of idle land,
and the right of access to that land with its natural resources. Paying taxes
on the value of land and natural resources gradually encourages dis-hoarding,
hence it lowers the price of the land, and correspondingly opens up the
resources of that land to all those who need them and can make use of them.
Worrisome hoarding is especially that which occurs both downtown and in the
belt surrounding major cities and towns. It is to leapfrog over this belt that
people go to the suburbs in search for affordable land, thus creating
overstretched lines of communication and protection and overlong commuting
lines—with consequent waste of fuel that overtaxes nonrenewable resources, the ozone layer,
the pocketbook, and the nervous system. Paying taxes on land value is a most
fair form of taxation, because it implies returning to the community part of
the value that is created, not by the individual owner, but by the community.
Land that sits idle does not produce income, true; yet, it produces capital
appreciation over time: Rare is the case of capital loss; and even when that
occurs, the relative loss tends to be smaller than the loss on other assets.
(To see how this pair of ERs&ERs meets also the requirements of
distributive and commutative justice, let us simply consider that, if one
avoids taxes, the total tax load is not going to be distributed fairly among
the population. And if one avoids taxes, one obtains something—i.e., private
control over a quantity of resources—for which one does not offer proportionate
compensation to the rest of the community.)
nonrenewable resources, the ozone layer,
the pocketbook, and the nervous system. Paying taxes on land value is a most
fair form of taxation, because it implies returning to the community part of
the value that is created, not by the individual owner, but by the community.
Land that sits idle does not produce income, true; yet, it produces capital
appreciation over time: Rare is the case of capital loss; and even when that
occurs, the relative loss tends to be smaller than the loss on other assets.
(To see how this pair of ERs&ERs meets also the requirements of
distributive and commutative justice, let us simply consider that, if one
avoids taxes, the total tax load is not going to be distributed fairly among
the population. And if one avoids taxes, one obtains something—i.e., private
control over a quantity of resources—for which one does not offer proportionate
compensation to the rest of the community.)
2. We all have the right of access to national
credit. Since national credit is the power of a nation to create
money, and since the value of money is given by the value of wealth left over
by past generations and the creativity of every person in a nation, national
credit is the last frontier, the last commons. Without access to credit today
one is made economically impotent. Worse, since this advantage is granted to
the privileged few, it is automatically denied to the majority of the
population who are henceforth condemned to pay a higher rate of interest, if
they obtain credit at all. Of course, such a loan should be extended only on
the basis of the responsibility to repay the loan. And these loans
will have a high chance of being repaid because they ought to be issued at cost
and issued exclusively to individually owned enterprises, Employee Stock
Ownership Plans (ESOPs), and cooperatives, as well as states and municipalities
with taxing powers, and issued exclusively for capital formation, namely for
the creation of new wealth—not to buy financial paper, consumer goods or goods
to be hoarded or to cover administrative expenses of states and municipalities.
Capital credit liberates people, while consumer credit enslaves them.
3. We all have the right to the fruits of our labor.
This right should not be limited to the right to obtain only a wage. It should
be extended to cover the other major fruit of economic growth over time:
capital appreciation—as well as being subject to capital loss, of course. The
only justification for reserving capital appreciation for stockholders, the
owners of a corporation, and excluding workers from it, can be found in the
fact that loans are given only to owners of past wealth (the Catch-22 of
today's economic reasoning: “save and invest and you too can become rich”—as if
this proposition were either economically feasible or ecologically
sustainable.) But from now on this right can be extended to people who do not
have prior wealth through the right of access to national credit—especially by
legally transforming workers into owners through individually owned
enterprises, Employee Stock Ownership Plans (ESOPs), and cooperatives. Of
course, this full right should be extended only in correspondence with the
responsibility to offer services of value equivalent to
projected compensation. And there will be an outpouring of such services
because, while in a command and control economy workers are requested to check
their brain at the factory gates, in a socially responsible economy—an economy
in which rights are exercised on the basis of responsibilities—workers/owners
are legally, socially, and psychologically empowered to exercise their brain
fully at their work post.
4. We all have the right to protect our wealth. This
right seems to be universally accepted, except in one case that matters most:
in the case of the trustification process, the process used especially after
the Civil War in the United States to create corporate trusts and repeated
in a hundred subtle variations ever since. (People feel free, not only to
acquire shares of the stock of one corporation, but free to use that stock to
acquire another whole corporation by all forms of trusts, mergers, and
acquisition. The very idea of the corporation, forever a public entity, has
thus been privatized and monetized.) There are two ways in which corporations
grow: One is through internal growth, and this approach ought to be protected
in no uncertain terms; the other is through external purchase and, with limits,
this manifestation ought to be prohibited in no uncertain terms. Why? Because
this prohibition is the only certain way to protect the wealth of present
owners. And if it is assumed that most stockholders of the modern corporation
are happy to have their shares bought and sold on the market, it must be
granted that growth-by-purchase takes wealth away from workers who have
contributed to create that value—and many times, in the trustification process,
lose their work site as well. All in the name of efficiency—a misnomer that
stands for private financial gain generated at the expense of shifting costs
onto the shoulders of the community at large. Of course, this right ought to be
purchased only at the cost of the responsibility to respect the wealth
of others. These are two-way streets. We cannot even attempt
to restrain the Pac-Man economy, while we use Pac-Man instruments.
two-way streets. We cannot even attempt
to restrain the Pac-Man economy, while we use Pac-Man instruments.
These economic rights and responsibilities can be exercised
by anyone who does not only want to receive economic justice, but also wants to
grant economic justice to others. Indeed, these are the essential conditions
for the establishment of economic justice, as well as the establishment of a
free enterprise system, in the modern world. As a consequence of the dynamics
of the implementation of these four marginal changes in our current practices,
economic freedom will be expanded to embrace all who want to subject themselves
to the rigors of the economic process—and then the few remaining hard cases can
be easily taken care of by charity. No. There is no compulsion in any of the
above suggestions. The landowner can pay more taxes and control more land or
can escape the tax levy altogether by reducing land ownership to zero; the
applicant for a national loan can escape the constraints suggested for access
to national credit by tapping into private capital markets; the worker can
escape the responsibilities of ownership by vying for a job rather than an
equity position; and the owner of physical capital can escape the constraints
implicit in the proposed anti-trust policy by remaining below the trigger of an
agreed-upon threshold for growth-by-purchase prohibition. This prohibition
should apply to the largest corporations first and be gradually expanded to
include eventually all except, let us say, corporations engaged in intrastate
or regional commerce.
Intellectually, the proposed economic rights and economic
responsibilities perform functions outlined in the conception of “general
abstract rules” by Hayek (1960: 153), the “original position” by Rawls (1971:
12, 72, 136, 538), the “reverse theory” by Nozick (1974: 238), and the
“Principle of Generic Consistency” by Gewirth (1985: 19); practically, they
will function as Gladwell's (2000) “tipping points”. Ultimately, it was a poet,
Vincent Ferrini (2002), who caught the essence of economic rights and economic
responsibilities by identifying their ability to provide “the answers to
universal poverty and the anxieties of the affluent.”
Operating as tipping points in our modus vivendi,
ERs&ERs will set in motion a process of interdependence that respects the
reality of economic affairs, and the reality of human relationships.
Recognizing that most people and most businesses always act morally, the
increasing number of “bad apples” that at times seem to receive all the
attention (and envious support) of a superficial intellectual world will be
recognized as dangerous exceptions, perhaps ostracized, but certainly no longer
applauded. Once the tendencies of these people are kept in check, all wealth
will be distributed, not equally—that is meaningless utopianism—but fairly. The
assurance for this result resides in the transformation of the current social contract
into a legal contract: when landowners pay their share of land taxes, they will
sell their hoards and access to land and natural resources will automatically
be opened up for most people; when people will get access to national credit,
many will become independent entrepreneurs; when workers are transformed into
owners, they will have the legal tools to demand a fair distribution of income;
when growth-by-purchase will mostly become a forbidden activity, most
corporations and most employee/owners will preserve their independence. These
measures, by consistently curbing the excesses of the few for a period of at
least ten years, will cumulatively lead to a fair distribution of income and
wealth. To reassure ourselves of this outcome, let us comprehensively look at
the issues from another point of view. If land owners were to use their
possessions of land and natural resources efficiently (with efficiency measured
through lower private capitalization and higher effective demand), would there
be such wanting in the world? If national credit were made available to all
entrepreneurs at cost, would we not translate the immanent reservoir of
creative powers into economically profitable ventures? If workers were
transformed into worker/owners, would we not increase our extant productive
capacity incommensurably? If corporate growth-by-purchase—with accompanying
translation of that economic power into corruption of our political system—were
curbed, would we not obtain less concentration of economic power into a few
hands?
All four ERs&ERs naturally lead to a fairer distribution
of income than prevails today. Eventually, with a fair distribution of income
and wealth, there will no longer be any need for redistributive programs, which
are an expression of double utopianism (first, people as if living in la-la
land are allowed to accumulate much, no matter how; and
then they are expected to peacefully discharge their ill-gotten
wealth). Preserving their current wealth, the rich will grow richer at a steady
but slower pace; and the poor will no longer be poor, because they will have
all they need. Lacking fuel at both ends, violent oscillations in the business
cycle will be abated.
peacefully discharge their ill-gotten
wealth). Preserving their current wealth, the rich will grow richer at a steady
but slower pace; and the poor will no longer be poor, because they will have
all they need. Lacking fuel at both ends, violent oscillations in the business
cycle will be abated.
We will thus recover the essential truth of economics. This
is the truth that there are two conditions of growth: economic freedom and
economic justice, as concrete expressions of freedom and morality. Both are
essential. The relationship between the two is quite clear: While freedom does
not necessarily bring justice with it, justice unavoidably brings freedom. One
can abuse freedom by denying freedom to others, one can never abuse justice.
Hence, the initial condition of freedom for all is proof positive of the
existence of economic justice in the land. This is economics that is socially
relevant. And the relevance is not an afterthought. The relevance is implicit.
The social import of economic theory is realized when the distribution of
ownership rights is seen as an integral part of its constitution; and the
social import of economic justice and economic rights and responsibilities is
simply stated: We must prevent all foreseeable injustices from occurring. Once
an injustice has occurred, there is nothing that can be done to undo the
dastard deed. This is the bosom of realism.
One last question: Is the proposed program of action the
latest expression of utopianism? The curt answer is: No. Utopianism has
consistently been based on the wishful thinking of a single person. The
proposed program of action results from filling in the gaps of a millenarian
train of thought that, in a seamless web, extends itself at least from morality
to economic theory and from there—through economic justice—to economic policy
and practice. Utopianism promises immediate results, as if by magic. This
proposed program of action asks for concerted, protracted effort. Whatever life
Utopianism has, it is based on the fanatical following of a small group of
people who try to force it upon the will of the multitudes. The proposed
program of action is expected to be readily understood and spontaneously
implemented by the multitudes.
Conclusion
Ethics enters most forcefully the field of Concordian
economics at three crucial stages: At the center of Concordian economics,
namely at the center of the analysis of the economic process, lies the theory
of distribution of value of ownership rights—with ownership rights being
composed of both property rights and economic rights. Thus the central problem
that bedevils contemporary economics is brought into the field of economic
analysis and under control.
The economic process is defined as the integration of the
production (of real wealth), distribution (of ownership rights), and
consumption (expenditure of financial instruments).
The theory of economic justice controls decisions in the
field of Concordian economic policy. And the clear attribution of economic
responsibility determines the creation of economic rights in daily Concordian economic
practice.) Thus rooted, not only present and future, but also past property
rights will be able to withstand any ideological ill wind.
The theory of economic justice comprises three planks:
participative justice, distributive justice, and commutative justice. The
theory of economic justice is the mirror image of the economic process: one
cannot be separated from the other, just as it is impossible to separate a
person from its shadow.
Rather than trying to summarize what has been said above in
the field of Concordian economies practices, allow me to give you in a few
sentences the brutal core of this analysis both in a negative and a positive
format. This core was offered on December 12, 2011 as a set of comments to Radford (2011).
Here they are:
Economics without ethics is an empty mental exercise. The
ethics of economics are exceedingly simple. They can be reduced to this one
maxim: Do not steal.
If you do not pay taxes on land and natural resources that
are under your exclusive command, you steal from members of your community who
will have to pay correspondingly higher taxes.
If you enjoy exclusive use of access to national credit, a
common good, you steal from others in your community who will have to pay you
interest for their loans.
If you pay wages, you steal from your workers the fruits of
capital appreciation.
If you agglomerate wealth into your hands using unethically
acquired financial resources, you steal future capital appreciation from
existing owners.
It would not be healthy to leave this text on a negative and
perhaps frightening note. Let us therefore observe the same economic reality
with an optimistic eye. The basic recommendation of this paper is this simple: Foster
economic policies that avoid all these four temptations to steal, nay, equalize
the initial conditions among all citizens of a nation, and you shall
automatically put the economic world aright. Once distribution of wealth as it
is created occurs fairly, the need for its re-distribution will vanish.
The economic condition of the world has been allowed to
deteriorate to such an extent that these words might appear as a practice of
magic rather than hard economic analysis. This would be a wrong inference. For
detailed analyses of the expected consequences, see especially Rawls and Hayek.
Above all, to see how realistic they are, Concordian economic policies and
practices have to be put in the context of time. Then it will be realized that
the expected result will be obtained not overnight but as a consequence of
perhaps ten years of steadfast transformation of Concordian economics into daily
reality. As in tipping points theory (and chaos theory), a new world will automatically
arise in the very application of these practices.
References
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