The Surprisingly Simple Key to a Proposed Transformation of Capitalist Society
limiting accumulation of cash and assets by corporations
No less a critic of capitalism than Karl Marx explicitly acknowledged the necessity of it, as the mass production of goods and services. His primary reason for endorsing mass production was that it organized ‘the masses’ as workers in factories. Still, Marx saw that it had the potential to make items commonplace that before would have been penultimate luxuries reserved only for the richest of people. That has come to pass, e.g. indoor plumbing, central heating — not to mention air conditioning — and kitchen and laundry appliances of various kinds, etc. (‘Communism’ would be civilization with — Marx surmised — the ‘from each according to ability, to each according to need’ social relations of ‘primitive’ society and the material well-being that increased material knowledge could provide.)
That sharing of ‘luxury’ came at a steep price. Before workers even began to share in the benefits of capitalism there were decades of suffering horrific conditions in the workplace while being paid barely enough to keep from starving to death, then being physically attacked by hired thugs and police (if not the army) if they went on strike to try to improve their material condition. That was the state of things when Marx died (1883). It took the Great Depression (1929–1939) to convince the powers that were of the economic wisdom of using government to ensure that the potential material well-being that capitalism offered would be shared more fully — wisdom many economic elites still refuse to accept. (The full effects of capitalist economies (dominated by enterprises of mass production) on the natural environment had been until recently beyond the horizon of our understanding.)
Our capitalist economy still has problems. It is unstable, with a constant threat to either implode in a depression or suffer an explosion of hyperinflation. There is still poverty. There is always unemployment. There is almost always some level of inflation — and deflation is how implosions happen. The whole thing is driven by debt (public and private) that has become substantially greater than annual total output/total income. It is a vicious cycle: an economy that must be ‘expanding’ (increasing total output/total income) to keep from collapsing — i.e., more and more, be able to ‘carry’ the ever-increasing load of debt that is ever more necessary for the economy to keep from collapsing. Again, we are now becoming aware of the effects on the natural environment of such an economy.
A transformed capitalist society (largely shaped by a capitalist economy) is possible.* It would still have capitalism, i.e., mass production of goods and services, but it would have no unemployment or poverty and could have neither taxes nor public debt. The economy would be stable and more environmentally sustainable: it would have a steady — ‘bulletproof’— level of total demand that would be determined by demographics that would in turn govern total output. All of that would follow from an alternative monetary paradigm.
One component of total demand would be a guaranteed minimum income (for adult citizens)** in an amount on which a person could actually live. It would not be paid to everyone, but any adult citizen (and any number of adult citizens) could become eligible for it. It would be as easy as not to pay that income to a parent (or legal guardian) in a household with at least one (legally recognized) dependent living there. (Though the impact of that on the labor market at present would be hard to be overstate, we are supposedly on the cusp of an age of drastically reduced opportunities for employment for human beings.) For people who are convinced that a more equal distribution of income is necessary to have a better society, with this paradigm that would be a possible option, too. All employees of any business or government — along with retirees and adults who were unable to work — could have the exact same income (with or without varying benefits provided by employers).
Another component of total demand would be spending by government. Forevermore, the total amount of money made available for government each year (all government, from local to national) would be the per capita amount of total government spending when this paradigm were adopted multiplied by the population of the nation.
Both that guaranteed minimum income (however many people might be paid it) and government would be funded by creating money (as currency) as needed. Those two purposes would, however, place an inviolable limit on how much money (as currency) would be created.
Whichever of its possible forms this paradigm took, it would still be “capitalist society.” For one thing, it would still have the same economic system, to include the rules governing participation in the economy, which would include the existence of private property, the profit motive, and the enforcement of contracts. Also, there would be no redistribution of anything, no cost imposed on any employer, no limit imposed on income or wealth, and no requirement for people to act in any way altruistically. [Even with the option of having all employees, etc. being paid the same income there would still be other ways of earning an unlimited income. For instance, a person could be in sales in various forms (being paid a commission) or be in business by oneself with no employees. As well, a person could earn royalties from ‘intellectual properties’, which include both patents and artistic productions (books, songs, films, etc.) — any of which could be undertaken in the form of (true) partnerships (thus no employees). Etc.]
All of the good that this paradigm would produce would hinge on creating money as needed to fund the guaranteed minimum income and government. A person does not have to have an M.A. in economics to understand the necessity of withdrawing money from the economy in that circumstance — for the simple reason that it would have an ongoing flood of money coming into the economy. [Currently, according to ‘Modern Monetary Theory’ (MMT), which dates back to the 1970’s, the purpose of taxes paid to the national government is to withdraw money from the economy — which I mention merely to note that such a thing is not a completely novel idea.]
It does take some somewhat sophisticated economic understanding to comprehend that (once the paradigm were fully in place) that flood of money could not cause inflation in ‘consumer goods’. That’s because incomes of people would not be increasing. Incomes determine demand. Inflation occurs when demand exceeds supply. That happens when demand increases and supply does not (or not enough, at least) — or supply falls while demand does not. If incomes were not increasing, demand could not increase — unless more people being paid incomes, but in this paradigm every adult citizen is always being paid an income. (To prevent inflation during the transition to this paradigm, that income would have to start at something close to the current minimum income and be increased gradually while taxes were being gradually reduced to zero.)
For businesses, rates of profit would not be increasing, either (at least not due to the structure and functioning of the paradigm itself), but in capitalism money flows to producers/sellers of goods and services. With no taxes to pay and a steady flow of revenue financed by money being constantly created as needed to fund a guaranteed minimum income and all government, businesses would be accumulating huge amounts of profits over time, even though their rates of profit had not changed.
It is easy to understand the effect that would have on the prices of assets — things that are purchased that (it is expected) will be worth at any point in the future at least as much money as was paid for them in the present. It’s not just that those prices would be going higher. They would be going up like rockets: they would obtain ‘values’ that put them in economic outer space. Imagine a single share of stock with a price in the millions. And even that wouldn’t be the limit — for the simple reason that there would be no limit. Keep in mind, also, that with this paradigm there would be no periodic recessions to ‘correct’ (knock down) the prices of stocks (and other assets, too, for that matter).
So, here I will relate the process for withdrawing money from the economy within this proposed paradigm in order to keep the prices of assets within the bounds of economic gravity (more technically, tied to corporations’ rates of profit). That will be accomplished by limiting the accumulation of cash and assets by corporations, thus creating such a thing as ‘excess’ profits, which would be collected, to be withdrawn from the economy (recirculated, actually, in funding the vaunted income and government — meaning less money, as currency, would have to be created).
That is not being ‘anti-business’. It is simply the one place from which the money can come without taking it from any person (see below).
Marx saw accumulation as the ‘Achilles heel’ of capitalism. For him, it is the driving force of capitalism while at the same time the accumulation of capital is also capitalism’s greatest internal threat. According to Marx, such ‘overaccumulation’ destabilizes the economy by creating a ‘necessity’ for periodic downturns that destroy capital, so that it might have room to grow (at desirable rates) once again. More prosaically, the accumulation of capital as ‘means of production’ leads to an oversupply of goods/services, when demand has been satiated yet more supply — and yet more potential supply — is still available, meaning production must decrease, if not stop altogether. (One particularly unfortunate effect of that aspect of the economy has been the advent of ‘planned obsolescence’, which has morphed into ‘not repairable’ and just plain crappy quality ensuring that replacement will soon be necessary.)
In the context of this paradigm stability is not an issue. The goal is simply, again, to keep the prices of assets in some relation to whatever rates of profit might exist among corporations.
There are, for present purposes, two kinds of businesses in this world. In one type of business the profits of those enterprises comprise the income of the owners of the businesses (which can include partnerships). Here, “corporations” refers to enterprises in which the profits belong only to the businesses. Those are publicly traded corporations, the stocks of which are available for purchase by the general public.
No individual on the planet can have any claim on the profits of any such corporation. Even someone who might own 99% of the stock of such a business could not make any such claim. (Of course, corporations of the kind we are talking about have vastly more dispersed stockholders: it is rare enough for any one person to own more than 50% of the stock of such an enterprise.)
Some corporations do have ‘voting shares’ that are much more limited in number — and possibly access, with only non-voting shares available for sale to the general public. Even then, though, holders of voting shares still have no claim on any of the profits of the business.
Keep in mind that “profits” are ‘revenue minus costs’. Those “costs” include all disbursements, to include paying for internal investments (including payments on loans from banks or bonds sold to finance internal investments), paying all remuneration — including benefits and bonuses — for all employees, including the ‘senior executive officers’ (e.g., COO, CFO, and CEO) as well as paying out dividends paid on stocks (if any). So “profits” are what’s left over after all of the legitimate claimants to any of the revenue of the corporation have been satisfied.
The brain trust of the corporation decides what to do with that money on behalf of the business. Most broadly, there is only one thing to do: accumulate; hold some of it in cash and buy ‘extraneous’ assets (assets having nothing to do with the functioning of the business) with the rest. Extraneous assets can take the form of stocks, or bonds (public or private), or real estate, or (though more rarely) direct investment in another firm, etc.
So, in this paradigm corporations would be limited in the amount of cash and extraneous assets that they could accumulate. At the end of each quarter, profits still there after all other claims on revenue had been met and the limits on the accumulation of cash and extraneous assets had been reached would be collected, to be withdrawn from the economy (again, to be recirculated, actually).
No money would be collected from any corporation before it could be used for the business — to include more remuneration of any employees or further investment in plant and equipment. The collection of money would not reduce future revenue or profits: the amount of revenue/profits a corporation might earn following any collection of money from it would not be affected by that collection of money.
How much cash or extraneous assets could be accumulated are details to be worked out if this paradigm were to be adopted by any nation, but both would (presumably) be multiples of the profit in the most profitable quarter in the history of the business. That in turn means that there would ultimately be no limit on the ‘wealth’ a corporation could acquire, since making more profit would always be a possibility, thus enabling the accumulation of more cash and extraneous assets.
Before closing, there is one further point that must be made regarding profits. As noted above, the outlays that currently come before profits include “bonuses.” In this paradigm bonuses would not be allowed as a form of remuneration for any employee. There would be no limit on how much an employee could be paid, but that pay would have to be in the form of a regular income. The reason for that is economic, not ideological: the functioning of an economy with this paradigm in place would require it. If bonuses were allowed, corporations could simply direct unlimited amounts of money to individuals, raising the distinct possibility that sufficient money might not be withdrawn from the economy, making a hash of this beautiful paradigm, with all of its benefits for both individuals and society as a whole — potentially, for humanity, for that matter.
For the same reason — making sure enough money got withdrawn from the economy (/recirculated) — corporations would also have to be banned from making contributions to any nor-for-profit entity. That would have to include political parties or other political organizations (or individuals), as well as foundations, private schools, etc. One more time: none of that is ideological, but only doing what is necessary for this paradigm to function well.
So, what of people — individuals? Should there be a limit on how much cash and assets an individual could accumulation?
Corporations can be limited to ‘legitimate business expenses’. They already are, in the tax codes. I don’t see how people can be justly limited in spending their money. If there were a limit on accumulation of cash and assets, people could still spend money rather than have it collected to be withdrawn from the economy (/recirculated).
Still, I would personally favor having a (generous) limit on accumulation, based on income: as with corporations, total accumulation (cash and assets) would be a multiple of income. People could still spend their ‘excess’ money rather than see any of it collected, but the presence of a limit on accumulation would provide a sense of ‘enough’: a person with an ‘excess’ of money would be one who had spent what they wanted and still accumulated a full amount of cash and assets.
So the surprisingly simple key to the functionality of this paradigm is to limit the accumulation of cash and extraneous assets by corporations. It would be debatable whether such a limit should exist for people.
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*See “A Most Beneficial Economic Change” (a “2 min read” here in Medium with links to articles about the paradigm from various perspectives).
**For the latest on that income, see “Duh!” (also here in Medium).
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