There is a BIG difference between CONSUMER CREDIT and CAPITAL CREDIT. And understanding this difference will help readers understand why American income has been distributed so unequally, especially over the past four decades, and why the wealth gap between the few and many threatens to undermine American democracy.
Consumer credit, on the one hand, is easy to get. Fill out a few forms online, and unless you’re in real financial trouble, you’ll receive your own personalized plastic credit card along with all the accompanying paperwork (lots of fine print) in a matter of days.
With consumer credit in hand, you can buy anything from gas at the pump, to beer at the ballpark, to a college education (student loans sound familiar to anyone?). A consumer credit card company wants you to buy all sorts of things on credit (often at ridiculously high interest rates, formerly called usury), to pay off later, while racking up a mountain of debt that will allow the lender to make it work for you. the rest of his days to settle his debt with them.
In Contrast – Capital Credit…
On the other hand, equity credit allows you to buy wealth-producing capital assets (i.e. land, machinery, buildings, corporate stock), to repay the loan at a reasonable rate until you own the asset outright and get all the financial benefits. of owning wealth-producing capital. Done right, the loan is paid back with FUTURE PROFITS (ie dividends) rather than out of the borrower’s own pocket.
However, home equity credit is much harder to come by (try buying a house sometime) than consumer credit. Generally speaking, borrowers need to be able to show they don’t need the money (meaning they have ample collateral to back the loan) before the lender will agree to anything. The result is that most wealth-creating capital assets that generate lucrative dividends for their owners are accessible ONLY to a small percentage of people: the 1% to 5% who can show they don’t need the money.
Virtually everyone else is left out when it comes to accessing capital credit and owning wealth-producing capital assets. This is the basic reason for the wealth gap that has transformed American democracy into a 21st century American oligarchy.
Enter Kelso and Adler.
Enter a gentleman named Louis O Kelso, who in 1958 published a book entitled “The Capitalist Manifesto,” in which he (and co-author Mortimer Adler) suggested that all American citizens should have access to capital credit with which to purchase wealth that produces capital assets at reasonable interest rates and, in the process, actively participate in (rather than be left out of) America’s highly productive free market economy.
Such a strategy, according to Kelso and Adler, would democratize a free market economy. Such a strategy would maintain the private property essence of the free market while avoiding the monopolistic tendencies that have historically undermined political democracy in laissez faire capitalist economies. In other words, it would save the free market from its own historical tendencies towards self-destruction.
By democratizing the free market (while creating much demand through a second “investment income” for every citizen*) and by systematically narrowing the malignant wealth gap, Kelso and Adler predicted an even greater economic expansion than that which followed Abraham. Lincoln’s Homestead Act of 1863, which gave every American citizen 160 acres of land (a type of wealth-producing capital asset), if they were willing to care for it. But where land is finite, business opportunities and corporations (as well as economic possibilities) are endless.
The oligarchs managed to marginalize Kelso/Adler
However, the oligarchs have managed to control the revolutionary ideas of Kelso and Adler and to this day, most of the public thinks there are ONLY 2 options when it comes to economics. There is the historically right-wing, free-market, laissez-faire capitalist approach of the Republicans. And there’s the historically left-leaning, pro-union approach of the Democrats.
The right pushes for tough individualism and personal responsibility, while the left pushes for enlightened self-interest that recognizes that we’re all in this together. According to conventional wisdom, the political pendulum swings between these two poles and, in the process, the Kelso/Adler prescription has been effectively ignored by the “free press.”
Enter the Homesteading Capital Law
But that doesn’t mean the “property economy” is dead and gone. On the contrary, over the last half century, thousands of employee-owned enterprises (ESOPS) and worker-owned cooperatives have sprung up across the country. When done for the right reasons (not to bail out a bankrupt airline), these examples democratize the conventionally high-handed corporate plantation.
Professor Rick Wolfe, Dr. Guy Alperovitz, and Dr. Ted Howard are unabashed and vocal advocates of worker-owned cooperatives based on the Spanish Mandragon model. Outbreaks of this can be found in places like Cleveland, Ohio (the Evergreen cooperative) and Jackson Mississippi (championed by the now-deceased Mayor Chokwe Lamumba).**
And a resilient band of renegades known as the Center for Economic and Social Justice, led by Dr. Norm Kurland, has developed and ushered in the Capital Homestead Act, which trades land for capital assets and, in the process, gives everyone US citizens access to capital credits (according to Adler/Kelso). The Capital Homestead Act is built on a PRIVATE PROPERTY foundation that those on the right will applaud. However, it also explains the fact that WE ARE ALL IN THIS TOGETHER, which those on the left will applaud. In other words, the Capital Homestead Act takes the best of both sides and melds them into a 21st century idea whose time has come.
Capital credit: an idea whose time has come
In any case, the time has come for an alternative solution because the arguments of the mainstream right and those of the mainstream left have missed the mark when it comes to empowering individual citizens, acknowledging that we really are all in this together, and when it comes to democratizing a free market economy. The economics of ownership is the key to the future for anyone who really wants a political democracy.
*Second income is generated from distributed dividends, NOT from taking a second job.
** Rutgers University also offers its annual Louis O Kelso Fellowship, which gives scholars across the country some experience in this unique line of thought.
In reality, people all over the world are interested in the concept of property economics, as exemplified by the Global Justice Movement and presentations by internationally renowned academics such as Professor Stefano Zamagni.