MARTIN DRAKE: Hello, everyone.
My name is Martin Drake.
I'm a 3L here at the law school.
I'm also president
of the Harvard Law
Forum, one of the sponsors
of this conference.
Welcome.
And thanks for coming
all the way down
to the basement for our panel
on "Economic Democracy Through
Monetary Design."
So this conference,
in recognizing money
as a public project, I
think necessarily leads
to a reexamination of the
types of economic institutions
that are promoted by
our monetary system.
It was highlighted in--
actually, earlier today,
I think it was the first
or their second panel
where someone asked
a question that's
really pertinent to
our panel today or now.
How can you construct a
democratic monetary system
when the way most people
get their money is
through the very undemocratic
employment contract?
And throughout American
history, both social movements
and the US government
have seen the potential
to create through
the monetary system
an economy that has
more democratic forms
of economic organization.
This panel, its
goal is to examine
both the historical
and modern attempts
to create more widespread
and democratic ownership
of the productive economy
through the monetary system.
Three or four
panelists were hoping
to answer two
fundamental questions
or at least focus our
discussion around them.
One is, what role does
the monetary system
play in shaping the
hierarchical structure
of our economic institutions?
And two, what monetary
forms, if any,
can encourage or
create an economy
where more participants
have access
to both economic and
decision-making power?
So on the logistics
of the panel,
our four panels are each going
to present for 15 minutes.
Since we're
time-constrained, I'll
have a timer that
will keep us in check.
And then we'll use any
remaining time for questions.
Now to introduce our
panel, first we'll
hear from University of Illinois
Professor Jeffrey Sklansky, who
will start our panel with
a dive into the specifics
of the monetary proposals of
the 1890s Populist movement
which attempted to support their
large-scale cooperative farming
institutions through
monetary creation
at the level of
agricultural production.
Next, we'll move
on to two speakers
that address worker
participation
in corporate governance.
First, we'll hear from Cornell
Law School Professor Robert
Hockett, who does
not have a name card.
ROBERT HOCKETT: There is one.
It said I was from Tulane.
And I didn't want to
offend my colleagues.
MARTIN DRAKE: It would have
been a strange way to announce
the departure from Cornell.
[LAUGHTER]
ROBERT HOCKETT: I love it.
That would be rather.
I grew up in New Orleans.
I love Tulane.
But I didn't want
to insult Cornell.
JOSEPH R. BLASI: Might I suggest
the Rockstar drink because
of all the [INAUDIBLE]
ROBERT HOCKETT: I'll
take a Rockstar.
LENORE PALLADINO: Rockstar.
MARTIN DRAKE: And
then we'll also
hear from Lenore
Palladino, who's
the senior economist and
policy counsel at the Roosevelt
Institute.
Her work argues that
corporate governance
must be expanded to more
stakeholders in order
to foster a more accountable
form of capitalism.
Rounding out the panel is
Rutgers University Professor
Joseph Blasi.
Professor Blasi is the
director of the Institute
for the Study of Employee
Ownership and Profit Sharing
at the School of Management
and Labor Relations
at Rutgers University--
quite the long title
of that institute.
Professor Blasi will comment
on the wide-ranging history
of policy on broad-based capital
shares in the United States
along with some more modern
examples and policy ideas.
And we'll situate the
other presentations
in a broader context of economic
democracy in American history.
So that's it.
Without further ado, I'd
like to pass the mic over
to Professor Jeffrey Sklansky.
And you're welcome
to stay at the table
or come up here,
whatever you like.
JEFFREY SKLANSKY: [INAUDIBLE]
Hi.
Good evening.
I'm really excited to
be at this conference.
And I want to thank Martin
Drake for organizing this panel
and inviting me to take part.
My paper is drawn from
my recent book, which
is called Sovereign
of the Market, which
is an intellectual history
of the long struggle
over alternative modes
of producing money
in the 18th and 19th
century America.
The book focuses on
three main phases
in the career of what Americans
called the money question--
first, colonial conflicts
over the innovation
of paper currency directly
issued by elected legislatures,
second, Jacksonian battles
over the rise of thousands
of state-chartered
commercial banks,
each issuing its own
bank notes, which
made up much of the new
nation's money supply,
and finally, late
19th century struggles
over the establishment
of a national banking
system, a national
paper currency,
and the international
gold standard.
I'm presenting here something
from that third phase.
It's an abbreviated
version of a chapter
on the preeminent economic
theorist of the Populist
movement, Charles Macune,
and his pathbreaking efforts
to devise a system of
currency and credit
that would support the
co-operative enterprise
of cash-poor but commodity-rich
grain growers and cotton
cultivators in the Gilded Age.
My argument is basically that
the radical monetary reform
that became the central cause
of the last great agrarian
uprising in American history--
that is Macune's
Sub-Treasury Plan--
arose from commercial
farmers' confrontation
with the pervasive
problem of association.
It emerged, that is,
from their struggle
to comprehend and control
mass production and mass
distribution on an
unprecedented scale
and from their
identification of money
as what the political
economist Henry Carey called
the "great instrument
of association,"
the material means of a new
kind of industrial democracy
in which the growth
of market relations
might knit people
together in increasing
harmony and mutuality
instead of class strife.
In the book, I follow Macune's
intellectual migration
through a series of
pivotal shifts in his views
in the face of repeated
frustrations and failures,
culminating in his embrace of
financial reform as the key
to the farmers' cause.
Due to time constraints,
I'll just mention briefly
the earlier stages
of his development
in order to focus,
as he came to do,
on the social meaning of money.
Macune began his career
in the early 1870s
as an ardent advocate
of the New South amalgam
of white supremacy and
business boosterism
as the means of liberating
the upcountry yeomanry
from its previous subservience
to the plantation economy.
But his observations of the
rise of the crop lien system
suggested to Macune that
the racial divide served
to bolster an emerging
structure of debt peonage
that bound white
smallholders and tenants
and black sharecroppers alike.
At the same time, the
failure of the New South
to uplift back
country settlers led
him to disavow his earlier
faith in industrial development
and to call for farmers to
unite across race and region
to control the prices of
their crops and supplies.
As leader of the Southern
Farmers Alliance,
Macune advanced an
ambitious two-track agenda
of expansion and
cooperation, successfully
forming the largest
agrarian organization
in American history
prior to the 20th century
and directing a large-scale
cooperative business that
purchased supplies and
marketed crops for farmers
all across Texas,
which provided a model
for the spread of
similar cooperatives
throughout farming country.
Aside from its
unprecedented scale,
the major innovation of
the farmers' exchange,
the Texas Farmers'
Exchange, was Macune's plan
for more prosperous farmers
collectively to extend credit
to their poorer neighbors.
But as the exchange and
scores of other cooperatives
failed across the
country, for reasons
that I won't detail
here, Macune concluded
that the root causes of
the farmers' condition
lay not in the market for
supplies or crops themselves
but in the structure and supply
of the money with which they
were bought and sold.
Cooperation required
a different currency.
In the late 1880s
and 1890s, Macune
came to articulate an original
explanation of the causes
of agricultural depression.
Previous currency critics
in the 19th century
had treated the demand for
money as rising steadily
from year to year in step
with the growth of the market
economy.
What was needed by this
logic was a mechanism
for similarly increasing
the money supply
at the rate of economic growth
so that it wouldn't become
a increasingly scarce asset.
By maintaining a stable
ratio between monetary supply
and demand, the argument went,
prices could be kept constant
as well, or rather, they could
be allowed to rise and fall
in relation to the
supply and demand
for particular
commodities without being
distorted by inflation
or depression
in the economy as a whole.
What others had missed,
according to Macune,
was that the demand
for money did not
increase uniformly with the
total volume of transactions
for which it was
called in to use.
In reality, monetary
demand varied qualitatively
from one economic
sector to another,
and it fluctuated steeply
over the course of each year,
particularly for farmers.
He argued that previous
writers' neglect
of the sectoral and cyclical
variability of monetary demand
comported reasonably
well with the conditions
for manufacturing,
which produced
a relatively unvarying output
of goods throughout the year
and therefore required
a stable supply of money
to keep prices from
fluctuating overall.
The demand for money in
the agricultural sector,
however, was far more volatile.
Commercial growers,
particularly those
who cultivated durable staples
such as wheat and cotton,
marketed the great
majority of their annual
produce all at once in the few
months following the harvest.
As Macune explained, this
seasonal onslaught of selling
had become more marked than
ever in the late 19th century,
partly due to the development of
the railroad and the telegraph
and partly due to the
pressures of the crop lien
system under which
farmers were compelled
to put their entire crop
up for sale as soon as it
was harvested in order to meet
the demands of their creditors.
Since the supply of money varied
little from season to season,
Macune continued, the surge
in agricultural demand
for the means of exchange in
the late summer and fall created
a severe scarcity of money
just when farmers were selling,
dramatically depressing
the prices of cash crops.
The subsequent fall
in monetary demand
led to a great glut of money
in the winter and spring,
sharply inflating the
prices of farmers' supplies.
Anticipating 20th
century theorists
of concurrent currencies
and multiple moneys,
Macune therefore urged the
dual creation of a stable money
supply sufficient to meet the
demands of the manufacturing
sector, supplemented by
an elastic supply tied
to the seasonal cycle of
the agricultural sector.
At the same time,
Macune crucially
argued that the
privately-controlled creation
of currency by banks should be
abolished so that government
would reclaim its rightful
exclusive authority
over the means of exchange.
What was needed, he
contended, was, quote,
"a government issue,
the volume of which
shall be increased to correspond
with the actual addition
to the wealth of
the nation presented
by agriculture at harvest
time and diminished
as such agricultural
products are consumed."
Such an elastic currency
was the main economic goal
of the so-called
Sub-Treasury Plan devised
by a special committee on
the monetary system appointed
by the National Farmers'
Alliance and led by Macune.
The plan called for replacing
the national banking
system established
during the Civil War
with a federal system
of sub-treasuries which
would operate public warehouses
where farmers could store
their staple crops,
receiving in turn
a new kind of legal
tender paper currency
equal to a maximum of 80%
of the value of the products
deposited, for which the
farmers would be charged
a nominal 1% interest annually.
These sub-treasury notes would
circulate freely as cash,
and the farmers could use them
to pay for their supplies.
Though the plan
was never enacted,
it became for several
years the centerpiece
of the agrarian cause.
And the arguments
made on its behalf
reveal the breadth
of Macune's vision
of monetary and
financial reform.
The most basic features
of the Sub-Treasury Plan,
as Macune conceived it,
concerned its provisions
for the marketing
of farmers staples.
It provided for the government
to construct and maintain
storage facilities
in 1,000 counties
across the South and
West, allowing farmers
to store their goods locally
instead of in the cities
and without paying exorbitant
rates to the owners
of warehouses or elevators.
Most importantly, it
would allow farmers
to turn their crops into cash,
up to 80% of their value,
without having to sell them as
soon as they were harvested,
alleviating the intense
downward pressure
on prices that came from
the rush of sales each fall.
The low interest
loans they received
in the form of
sub-treasury notes
would enable farmers to
buy their supplies in cash,
freeing them from the grip of
furnishing merchants, country
storekeepers, charging
exorbitant prices for buying
on credit.
In this way, the
Sub-Treasury Plan would also
eliminate the power and
incentive for merchants
and financiers to hoard money,
encouraging them to invest it,
he thought,
productively instead.
Macune called his market ideal
"equivalence of service,"
meaning that
commodities, as he said,
should exchange for other
commodities of equivalent
value, determined by the
labor or service required
for their production--
commodities exchanging directly
for commodities, producers
trading directly with consumers,
though on a mass scale.
This was a vision in which
the mechanisms of finance
and exchange no
longer charged a toll
or distorted commodity
markets, as he saw it.
The spirit of his ideal came
close to what Macune called
the "scientific anarchy" of the
French radical Pierre-Joseph
Proudhon, whose ideas
he professed to admire.
In his Solution of the
Social Problem, 1849,
Proudhon articulated
what he called
his "principle of
reciprocity," which he said
was essentially the golden rule
applied to market relations--
in his words, "products
exchanged for products."
"What must we do to make
possible direct exchange
not only among 3, 4,
6, 10, or 100 traders
but among 100,000, between all
producers and all consumers?"
Proudhon asked, explaining
his goal of quote,
"disintermediation."
His answer was that
what was required
was not to eliminate
money but to make
everything money, in a sense.
"Let all merchandise become
current money," in his words,
"and abolish the
royalty of gold."
Gold was the ultimate despot
in modern market society,
according to Proudhon.
His goal was to overthrow its
despotic power by monetizing,
in effect, all commodities.
Quote, "if all the
products of labor
have the same exchange
value as money,
all the workers would
enjoy the same advantages
as the holders of money.
Everyone would
have in his ability
to produce an inexhaustible
source of wealth," unquote.
The Midas-like power to
make everything money,
to make all merchandise
as good as gold,
he imagined, would be
tantamount to dethroning money
as a power unto itself.
Macune shared Proudhon's
animus toward what he similarly
referred to as the
"tyranny of gold,"
which he regarded as a
vestige of the original basis
of commercial oppression
in the ancient world,
namely merchants'
exclusive control
over the precious metals.
As it did for many agrarian
radicals at the time,
the gold standard
stood in his eyes
for the age-old practice of
conferring special privilege
on the precious
assets of moneyed men
over against the values created
by the producing classes.
Yet unlike partisans
of Free Silver,
Macune did not
simply seek to make
the money standard broader.
He aimed to make it
more truly universal,
as he saw it, by conferring
the status of money
on the leading commodities
of the country,
making cotton as good as
the white gold with which it
was often equated.
As the Sub-Treasury
Plan became the target
of vociferous attack,
Macune frequently
said that the
details of the plan
were far less important than
the principles it embodied
both as a critique
of the existing order
and as a vision of
a better society.
Quote, "the central
idea underlying
the industrial movement
is the establishment
of economic systems that will
ensure equivalence of service
in the exchanges and business
transactions between man
and man," Macune wrote.
He explained that,
quote, "the expenditure
of labor and production
means the expenditure
of a part of the life
forces in the product.
A portion of the
toiler's life is
blended, woven, and embodied
in every article of wealth
he produces.
Those stately mansions
that line our streets,
those piles of goods that
fill those warehouses,
all this wealth really
means so many human lives
crystallized by labor."
At its core, the
Sub-Treasury Plan
represented an
ideal market society
in which commercial exchange,
as Proudhon also suggested,
would be the vehicle
for the fulfillment
of the Christian ideal
of mutuality and, quote,
"reciprocity."
Quote, "under an
equitable exchange system,
every worker would receive
for his product or services
an equitable amount of
the labor or services--
that is, the life of others.
Under an unjust
system of exchange,
he is robbed of a part of
his life," Macune wrote.
Denouncing what he called
"economic cannibalism,"
he concluded, "monopolists
manufacture the muscle, blood,
and brain of the
workers into wealth
without rendering
an adequate return."
While Macune's hopes
for a democratization
of the means of market relations
were largely disappointed,
the ideal he had
championed endured.
When he was pushed out
of the Farmers' Alliance
at the age of 42, he had
spent less than seven years
in the agrarian cause, and
he never re-entered the fray
of national political debate.
His father had been a pastor.
And after a few years
practicing both law and medicine
in the mid-1890s, Macune himself
became licensed to preach.
He spent the first two decades
of the 20th century working
as an itinerant supply
preacher for a circuit
of small impoverished towns
and districts in central Texas,
the same communities
that had been
at the heart of his politics.
He joined his son, also
a Methodist minister,
in missionary work
in northern Mexico.
And he ended his
career as pastor
for a church in Miami, Arizona.
Amid the defeat or cooptation
of its broadest political aims,
the agrarian movement
channeled much
of its imaginative
energy and spirit
into the evangelical church.
But its cause was not Utopian
in any pie in the sky sense.
From a sustained and
sophisticated engagement
with the changing political
economy of southern farming,
Macune drew a deeply
democratic vision
of the possibilities of
large-scale industrial
agricultural and
finance liberated
from what he called "the
power of money to oppress."
Thanks very much.
[APPLAUSE]
MARTIN DRAKE: After you.
ROBERT HOCKETT: Yeah, great.
So thanks all for being
here and for indulging us.
I'm basically going
to channel a book
that I've got coming
out that connects up
an ancient ideology of sort
of the American republic
on the one hand with
contemporary thinking
about money and
banking on the other.
So I start with a couple of
premises, and then I elaborate.
The first is that
the word "republic"
that we use a lot in our
discourse, even in the word
"Republican" and
all the variants
thereof, used to have a rich and
resonant meaning, some of which
has been lost, I think, in
a lot of contemporary folk.
So the founders who began
talking about a republic back
in the early days
of this republic
had something quite
specific in mind
that was handed down by the
official ideologists, you might
say, of the ancient
Roman Republic
prior to Rome's
becoming imperial.
And roughly, what
they had in mind
was the idea of a society of
roughly equally-endowed people
who are materially independent.
That's to say that each
citizen, more or less,
had the wherewithal to be
self-sustaining economically
speaking, or again,
materially speaking.
It was kind of an autarky
idea or sort of something
vaguely like autarky.
And the republic was the
res publica, a public thing.
It was basically meant to
be that instrumentality
through which these free
and materially independent
people could work
together to address
legitimate collective
action problems that
required collective address.
But otherwise, they would
be more or less autonomous
individuals,
autonomous citizens.
This ideology was
reawakened, you might say,
during the Renaissance period.
Machiavelli, a couple of other
important Italian thinkers
and historians sort of
recover the ideology
of the old Roman Republic.
Their writings were quite
exciting to a number of people
in the north of Europe.
So the Dutch Republic
was self-consciously
formed around the idea of
the ancient Roman Republic.
Those ideas, the same
ideas, had migrated over
across the Channel and
to the British Isles,
a number of very important
of the early modern era,
in particular, James Harrington
and Lord Bolingbroke,
were popularizers of the
idea of the British Isles.
These ideas migrated
across the Atlantic
with the peopling of the
North American continent,
at least part it by those who
came from the British Isles.
And that's the very reason that
you find the word republic,
republic, republic, republic
throughout the writings
of the founders both in
their public writings--
they're sort of
controversializing over the new
Constitution--
and in their private writings.
It's also why you find a
clause in the US Constitution
which is known to lawyers
as the Guarantee Clause,
pursuant to which the
federal government undertakes
to guarantee to
each of the states
a republican form of government.
They're not talking
about Abraham Lincoln.
They're not talking
about George Bush.
They're talking about
a very specific meaning
behind the word "republicanism."
So that's sort of our
ideological heritage,
you might say.
And that's why we say "and
to the republic for which it
stands" and blah, blah, blah.
The other thing,
another important part
of our ideological
tradition, I think--
it seems to me that
it kind of connects up
with our republican tradition--
is a tendency to favor
stocks over flows,
if I can use financial
language for a moment,
to favor old property
over new property.
What I mean by that
is, when it comes
to securing the means
of material independence
among the citizenry, we tend--
naturally, I suppose-- to think
in terms of securing ownership
of productive assets to the
citizenry rather than to,
say, guaranteeing rights to the
incomes of one kind or another,
whether it be, say,
universal basic income
or some other kind of
income-generating legal
arrangement.
We seem to have a
tendency to prefer income
that comes from the ownership
of particular assets, whatever
those might be, hence this
reference to stocks over flows.
Here too you find
this preference
registered in a number
of different spheres
of American life.
For one thing, our law tends
to favor stocks over flows,
or it tends to
favor old property
over new property rights.
So real estate ownership
is very secure and stable
as a matter of American
law, whereas your right,
or your entitlement,
say, to welfare payments,
although that is
property in the sense
that Charles Wright
famously called it
the so-called new property,
it's less secure property
in the sense that
a Bill Clinton will
veto, quite happily and
blithely, change the welfare
laws, and end welfare as we
know it, and thereby take away
what had become a
form of new property,
in Charles Wright's words.
But you wouldn't see probably
Bill Clinton suddenly changing
the law of title to
real estate or title
to other forms of
physical property.
So as a matter of American
law, we tend to favor,
it seems, older forms of
property over newer forms
or against stocks over flows.
That also, that
preference, seems
to cohere nicely with or
resonate nicely with republican
ideology as well, this sort
of ancient Roman republican
ideology, which tended to be
very land-focused or developed
during a time when
land ownership was
the primary form of productive
work, remunerative ownership.
And it seems that it might even
be a part of our psychology.
There might be a deep
hardwired tendency pursuance
to what I call
"endowment" psychology,
to favor owned assets over
rights to income flows
from one source or another.
Now, this tendency to
favor stocks over flows
and to think of ourselves as
republicans or as constituting
the republic found expression
in American public policy
for many, many decades.
And I would argue that
it even finds expression
in public policy to this day.
If you focus on
the 19th century,
particularly the late 18th
through the 19th century,
we seem to have decided, either
consciously or subconsciously,
either deliberately or
cognizantly, on the one hand,
or perhaps just implicitly
on the other hand,
to put in place what I think
of as a sort of a three-legged
stool of a owners' or
producers' republic.
On the one hand, we adopted
policies and legal reforms that
seemed to be designed to spread
the ownership of land quite
widely over the population--
that's to say that the Anglo
or the European population that
came and took the land from
the prior inhabitants--
also to spread a certain kind
of productive capital that might
be distinguished from
land conceptually,
even if sometimes as a
matter of practical reality,
there's a kind of coinciding--
and I'll explain in a moment--
and then human capital as well.
So for example, when you
think of land in particular,
some of the very
earliest changes
that the colonists,
the American colonists,
made to English
real property law
was to abandon fee tail, which
was a form of land tenure
that kept land within families.
It tended to concentrate
it within families.
They abandoned
that quite quickly,
apparently to encourage
a broad spread
of the ownership of land, which
was the preeminent productive
resource of the period.
After that, of course, in the
sort of late mid-19th century,
probably most famously
the Homestead Act
spread land very widely over
the citizenry to anybody who
could make the land productive.
Most people have heard of
or at least know something
about the Homestead Act.
What many people
don't seem to know
is that, actually, there
wasn't a single Homestead Act.
There was a sequence
of Homestead Acts,
the last of which was passed
in the early mid-20th century
rather than the 19th.
And again, the idea was to keep
spreading land that had not yet
fallen under individual citizen
ownership among a broader
and broader swathe
of the citizenry.
And it seems like
fewer people have
heard of the Land
Grant Acts than have
heard of the Homestead Acts.
But the Land Grant Acts
were passed concurrently
with the Homestead Acts.
And these were a package deal,
so to speak, you might say.
The idea of the
Land Grant Act was
to spread human
capital as widely
as we were spreading land.
The idea here was to
spread human capital
in a way that enabled people
to make that land productive.
So the so-called
land-grant universities
are, of course, the
best known product
of that period, which,
of course, include
agricultural extension
programs in every state
where you find
land-grant institutions.
Being from Cornell
myself, I'm particularly
interested in
land-grant institutions.
I'm employed by one.
But in any event, so the
idea here then was to spread,
again, you might say, a kind
of human capital as widely
as we were spreading land.
The other thing
that's worth noting,
I think, about this
period was, at this time,
two of the legs of the
three-legged stool,
as I'm calling it, were,
in effect, provided
by one resource, namely land.
So land, as long as the
economy was primarily agrarian,
to spread land was not only to
spread kind of the habitations
or livable homes but was also to
spread, again, the pre-eminent
or a precioius resource of
the time, or at least one
of the primary productive
resources of its own.
So you could sort of say
that by spreading land,
the Homestead and Land
Grants were spreading
a kind of non-human capital at
the same time that they were
spreading a resource on which
people would live, land or
[? homes. ?]
And so during the
19th century and up
until around the end
of the 19th century,
it was plausible to suggest that
we were a kind of producers'
republic, or we had public
policies that were designed
or well-calculated to providing
the kind of underpinnings
of a sort of producer republic
by spreading widely shelter
on the one hand, a productive
resource in the form of land
on the other hand, and
again, human capital,
on the other hand.
As we reach the end
of the 19th century,
however, there were a
couple of problems that
emerged for this grand scheme.
One was the land, of
course, began to run out.
Once we got over to the Pacific,
once the so-called Manifest
Destiny had been realized, that
we had reached the Pacific,
there really wasn't much
more land to spread,
unless we were going to
go to conquer more peoples
and commit more genocide.
And so we'd get more land
to spread more widely.
We obviously didn't
quite do that.
The other problem, of
course, that emerged
was that the economy
shifted steadily
away from being primarily
agrarian in orientation
and became increasingly
industrial.
And what that meant was that
as the 20th century opened up,
we had spread a certain form
of human capital widely.
We had spread land widely.
But we were no
longer spreading what
you might think of as
industrial capital,
or non-human capital is
what I mean, at least not
usable non-human capital,
because land, again,
was less able to serve as a
kind of non-human capital.
That led to a certain
form of instability
that I think, in a
way, you can think
of as being the
primary challenge
that we faced in
the 20th century
without ever quite naming it.
So the way I describe
this is as follows.
There is a tendency,
under some circumstances,
for an economy to lurch into a
kind of stasis or into crisis
when its absorptive
capacity fails to keep up
with its productive capacity.
When people who are
producing things
are no longer able to purchase
those things at the same rate
at which they can
produce them, you
have a long-term tendency toward
a kind of crisis proneness,
you might say.
In effect, what I call this is--
the language I adopt for
this to explain what happens
here is I use the
term what I call
the income compositional
symmetry principle.
So the idea is this.
Let's say that labor
accounts for 10% of value
added in a given economy.
And let's say capital
accounts for 90% of value
added in a macroeconomy.
If individuals themselves, if a
large portion of the population
derives most of its income from
labor rather than from capital,
there's going to be
a long-term tendency
for that macroeconomy's
absorptive capacity
to be outrun by its
productive capacity.
So basically, the
way to maintain
a kind of macroeconomic
stability,
a kind of an equivalence between
absorptive capacity on the one
hand and productive
capacity on the other,
is to ensure that each
individual's income
composition more or less matches
that of the macroeconomy,
right?
So every individual
is, in effect,
kind of a microcosm
of the macroeconomy.
So what that would mean
is, again, if 90% of value
added in the economy comes
from capital, that each
of us as an individual would
derive 90% of his or her income
from capital, and if only
10% is accounted for by labor
that each of us would derive
about 10% of his or her income
from labor.
The farther you depart
from that form of income
compositional symmetry,
I'd argue, the more likely
you are to go out of
balance in the sense
that the economy's productive
capacity will tend to outrun
its absorptive capacity.
In other words, you'll have a
tendency to move into stasis.
You'll have a tendency to
move into secular stagnation.
You'll have periodic crises
or so so-called overproduction
or under-consumption,
which, of course, were
two ways of describing
the same crisis
that many political
economists began
to talk about in the later
part of the 19th century
and the early part
of the 20th century.
So the question
becomes, how do you
then address income
compositional asymmetry
if it emerges as a serious
problem, as it seems
to have done in this country
starting in the 20th century
when it had not been so serious
a problem in the 19th century?
Precisely, again, because we
had spread productive assets
widely, we had spread
widely the assets
that were the primary productive
assets of the period, given
the level of
economic development
that we had reached
in the 19th century.
It seems to me there
are basically two ways.
One way is legally to change
the comparative returns
to labor and capital, right?
So when we talk about,
say, 90% of value
added in an economy being
accounted for by capital
and 10% by labor or
whatever the compare
the percentages are, that's
not a natural fact, right?
That's not written into the code
of the universe or anything.
That's a legal artifact, right?
The fact that-- the thing that
makes it possible for capital
to earn higher
returns than labor
is, of course, capital scarcity.
Or it could be
engineered, we might say,
legally engineered or legally
protected capital scarcity
on the one hand and
legally retained
labor abundance or
over-abundance on the other,
right?
In other words, if capital is
scarce or kept scarce by law,
then those who own
capital can act
as [INAUDIBLE] and charge a lot
for the use of that capital.
If labor for its part--
[BEEPING]
MARTIN DRAKE: Yeah, that's
about two minutes or so.
ROBERT HOCKETT: Oh, I thought
it was just a couple seconds.
[LAUGHTER]
So the returns to
labor and capital
are legal artifacts, right?
So one possibility
then to address income
compositional asymmetry
would be legally
to change the returns
that can be had by labor
or by capital either by
taxing away capital incomes,
by deploying public capital
to render capital no
longer scarce, to facilitate
collective bargaining by labor,
basically labor law to enable
labor to essentially become
[INAUDIBLE] collective
[INAUDIBLE],,
in the way the capital
suppliers were [INAUDIBLE]..
Yes, that's one way
to do it, right?
And we did take steps
in that direction.
Or at various times
in the 20th century,
we did something
kind of like that.
But the other possibility
would be to essentially use
public capital to
enable individuals
more readily to become capital
owners themselves, right?
So you'd say, OK, instead of
counteracting capital scarcity
or enabling greater labor
scarcity through law,
we might say, OK, we'll
accept the returns
that capital earns now.
And we'll accept the returns
that labor earns now.
But we will collectively act
to spread a wider ownership
of productive capital, basically
a kind of 21st century analog
to the spreading
of land that we did
when it was the productive
capital, so to speak,
in the 19th century.
And there are various
ways to do that that
make use of public finance or
the means of public finance
and make use of public credit.
And the book that
I've mentioned,
it'll come out
later this spring.
It's called A
Republic of Owners.
A significant
portion of the book
is devoted to mapping out
various ways to do this.
And one of the ways is
through a particular proposal
that a few of us have
been working on of late.
And I think Joseph in particular
is going to talk a bit more
about that specific proposal.
So I'll stop there
since I'm out of time
and since it makes for
a great segue to Joseph.
[APPLAUSE]
MARTIN DRAKE: It's
up to you all,
but we had Lenore going first.
JOSEPH R. BLASI:
You're the chair.
LENORE PALLADINO: Sure.
MARTIN DRAKE: Yeah, go ahead.
LENORE PALLADINO: All
right, good afternoon.
I really appreciate
everyone's patience.
I know it's 5:45.
I can see the energy in the room
starting to go a little down.
People are getting hungry.
So I'll try to be relatively
brief in the hopes
that we really can
sustain our energy
through for some discussion and
conversation, which is usually
the most interesting part.
So I really appreciate both
of these presentations.
And I'm really
honored to be here
with two of my favorite
public intellectuals
sitting over here.
I'm going to talk and jump
off a little bit, I think,
from Bob's presentation
And i think maybe hopefully
not duplicate anything
Joseph will say
but talk about this idea
of what it would look
like for corporations
to also be democratic
economic institutions, right?
So the framework of this
conference is, as I read it,
that recognizing money and
credit as public products that
expose democratic
purpose and possibility,
we should know that
public power creates
money, which has been in
the discussion and so much
of the conference.
But it also structures
corporations.
Corporations themselves, our
largest business entities,
are creatures of
public permission.
They don't exist unless
you get that stamp
from a secretary
of state or what
have you on your
certificate of incorporation
or articles of
incorporation, right?
And it's striking
to me, actually,
how much so many
people that I work with
don't even realize this.
They say, oh, corporation,
LLC, whatever,
different types businesses.
But when we recognize
the immense privileges
that we give to corporations
of limited liability
and everything else
that we can list off,
we have to recognize that that
is a grant from the public,
right?
It's a democratic creation.
And so because of that, we
should understand corporate law
and corporate governance rules
as rules that we as a society
should create in the
best interest of society.
Over the past 40
years, we've been
captured by this idea of
maximizing shareholder
value, which we
don't have time--
and you can see
many nodding heads.
Of course, most
people, I would bet,
in this room know the history
from the Chicago School
on in terms of creating this
framework that we could spend
a whole different conference
exploring why it's
just incorrect on so
many levels, why it's
incorrect as a legal
matter, why it's sort
of empty as an economic matter.
But if we stop there and don't
actually explore what would
it actually look like to produce
corporate law that actually
takes societal benefit
as its North Star,
I don't think we've done enough.
So I sort of take that as the
question for this conversation.
So I'll maybe just
say one quick word
about what's wrong
with shareholder
primacy, just because
that's something that I'm
obsessed with right now.
Shareholder primacy
is just another way
to say that people
think that law states
that the ultimate goal
of all corporate activity
should be shareholder
wealth creation, right?
So what has that justified?
That's justified in
this year $1 trillion
being spent on stock buybacks
for open market share
repurchases by our
largest corporations.
So a stock buyback is a
tool that corporations
use to repurchase their
own stock in order
to have the value of the stocks
that remain on the market
rise in value automatically
without having
to do anything
productive to improve
their profits or anything else.
And there's a lot
of different issues
that I could talk about
about what I think
are wrong with stock buybacks.
But I think that, just to
give as a counterpoint,
we spent about $3
and 1/4 trillion
in this country per year
on health care, right?
So 1/3 of the amount of money
we're spending on health care
is going towards this goal of
simply enriching shareholders
while doing nothing else to
improve corporate productivity.
That's kind of an
astounding fact
and shows how far, I think, how
far along shareholder primacy
is as an entrenched
framework in practice
for corporate behavior.
So if we sort of take that
as a starting point for where
we are, I think it's
good to hear about some
of the movements in the past
and their aspirational goals,
even if they didn't fail.
The question, to
me, is really, what
should some of the
aspirational goals
be that actually would
restructure corporations
so that they're actually
productive for the society?
And I should say, I work
in a policy think tank.
I think about policy on
two different levels.
I think there's the
policies that we're
working on in the day
to day that I hope
might become a reality in 2021.
And those are really important.
But then I think there's the
deeper more profound level of,
what are the types
of real policy
restructuring of our
entire economy that I think
is more the subject
of this conversation?
So I'm going to talk about
just two areas of policy that
are more in the aspirational
and less in the nuts and bolts,
just for the purposes
of right now.
So the first is the question
of how actually should
corporate governance
work, right?
We have as this framework.
OK, shareholders
elect the board.
The board, its fiduciary duties
run only to shareholders--
huge literature contesting that.
But what would it actually
look like to set things up
in a different way?
One way to structure
corporate behavior
is through stakeholder
corporate governance.
Stakeholder corporate
governance is
this idea that, I think,
to those of us in the US,
even those of us who are
active in progressive politics,
it's like completely radical,
completely insane, right?
So we should just start by
knowing that it's actually
pretty common in different
forms throughout much
of Europe and other nations.
But it's basically
the idea that there's
different groups of
actors who actually
contribute to the
success of a corporation.
It's actually not
the shareholders.
So we step back and think.
Well, if all other groups
fell away, what would be left?
Would there be a
functioning business
enterprise that would produce
stuff and sell it to customers?
No, there would not, right?
There's different
groups of stakeholders.
There's employees.
There's customers.
And there's the public.
So an idea of stakeholder
corporate governance
is just quite simply that all
the stakeholder groups should
have a voice inside
corporate governance
and that the responsibility
of the board of directors
should run actually to those
multiple groups of stakeholders
rather than just
its shareholders.
This is a piece of policy that,
actually, Senator Elizabeth
Warren proposed earlier
this year called
the Accountable Capitalism Act.
The elements of
it are, one, as I
said, there should be
stakeholder representation
on boards and that
boards' fiduciary duty
should run to all stakeholders.
A third component
of it is, really,
how we understand
corporate purpose, right?
As I do in my legal
work, if you write down
what the purpose is on an
articles of incorporation,
it's just any lawful
purpose, right?
We don't have to
say anything when
we're creating a
corporation that it
should serve the society.
So a third element
of the policy change
here would be to
actually institutionalize
an understanding
that corporations
must have some kind of
material positive benefit
for the society.
I think the work that's gone on
over the last couple of years
to create the benefit
corporation movement, where
over 35 states, I think, now
have passed statutes that
allow corporations to
opt in to this framework
is really important.
But because it's an opt
in, we know it's never
going to be transformation.
It's going to be
something that always
appeals to just a select group.
Another, I think, interesting
question for us right now--
we're in this
conference, and we're
talking about these deep,
profound public policy issues.
But I haven't actually heard
climate change or the climate
disaster come up
here today, which
I think is actually no longer
something we can keep separate
from any other conversation,
just for all the reasons we all
know.
So an interesting
question to me when
we talk about stakeholder
corporate governance,
I think it's clear why employees
contribute to the corporation
and why our public
policy should actually
situate employees as
a critical stakeholder
within the corporation.
But what about the
broader public?
If we understand now
that corporations because
of the lack of
requirements on them
to actually internalize their
externalities that they're
creating on a
society, if they have
created this catastrophic
circumstance in which
we all may die--
not to be dramatic about it,
but that's sort of established
at this point--
what then should the
role of the public
be as a stakeholder
inside the corporation?
How do we actually
concretize that?
I think it's something
that's really
going to be critical
to engage with as we
look at more and
more at how climate
change is going to evolve.
I think it raises all kinds of
interesting legal and pragmatic
questions about, how would
you actually institutionalize
stakeholder corporate
governance beyond employees?
So in other words,
how do you actually
include not only customers
maybe or supply chain members,
but how do you actually
include the broader public?
What would that really look
like in stakeholder corporate
governance?
So that's one area for reform.
And then I'll just
close by saying
I think the other area of reform
that has to be integrated here
is employee ownership.
And I'm going to mostly
leave that to Joseph,
because for me to pretend to
talk about employee ownership
when Joseph is here
would be kind of silly.
But I'm just going to mention,
I think, one aspect of it.
So I work at the
Roosevelt Institute,
and then I also do a
little bit of legal work
with worker cooperatives and
employee-owned businesses.
And I think there is a moment
right now where there's
tremendous growth and energy
around the employee ownership
movement.
Much of it is concentrated
in small to medium-sized
businesses, right?
And much of it is about,
in the here and now,
how do we actually create
the potential for financing
and potential to scale
that's so necessary?
I think a question at
this more abstract level
is, what about public policy
that actually would mandate
some level of employee
ownership to go along
with stakeholder
corporate governance?
Should we have stakeholder
corporate ownership, right?
What would that
actually look like?
So in the UK earlier this
year, in this summer,
the Labour Party proposed
something called the Inclusive
Ownership Fund, which is
basically a requirement that
all corporations
would, I believe,
over 250 or maybe 500
employees, actually, over time,
transfer ownership
to their employees,
up to 10% of the corporate
shares outstanding.
They have a process by
which this would happen.
I think it raises all kinds
of interesting questions
if you actually were talking
about a political moment
in which we could enact
something like that.
And we'd have to figure
out a lot of details.
But I think, as a
framework question,
to actually recognize,
again, that employees
and maybe the public
as a stakeholder
should have the co-determinative
power within corporate law
and corporate ownership, I think
it's a really important way
to understand this
broader project we're
engaged with here about
how the public actually
should structure the economy and
structure economic relations.
So I'll close with that.
[APPLAUSE]
[SIDE CONVERSATION]
JOSEPH R. BLASI: So
thank you very much.
I'm delighted to be here today.
So I'm going to talk a little
bit about our book called
The Citizen's Share--
Reducing Inequality
in the 21st Century.
Richard Freeman at the Economics
Department here at Harvard
was a collaborator along with
Doug Kruse, who's my colleague
at Rutgers, also an economist.
One of things I did
for the book was
use the University of
Virginia Rotunda Project
and the writings of
the founders to do
a very systematic
analysis of this thesis
that Robert also spoke
about, where many of them
believed that broad-based
property ownership was
absolutely essential for a
democratic republic to exist.
And I have my own way of
summarizing this ethos, which
is that they were interested in
modest taxes, small government,
and broad-based
property ownership,
which enabled individual
economic liberty.
Now, the current
Republican Party
and some parts of the
current conservative movement
have forgotten the
third there, right?
And in fact, if you look closely
and do a textual analysis
at the Rotunda Project at
the University of Virginia,
the founders'
writings, they actually
believed that broad-based
property ownership produced
smaller government and
produced modest taxes,
and as Robert said,
produced economic liberty.
Obviously, many of them either
committed or bought into
or allowed the great
evil of women's exclusion
from civic life and slavery.
I feel like we've made some
progress, a lot of progress
maybe in some areas, but very
little progress in other areas.
During Washington's
period of policy
and up until the Homestead Act--
and I want to stress this--
even before the
Homestead Act, there
were a variety of methods
to use credit arrangements,
and essentially, even late
payments arrangements,
which effectively were like
credit arrangements, right?
You could acquire land under a
lot of policies pre-Homestead
Act by paying--
you got the acquisition,
and you could
pay later in installments.
It was effectively
a credit arrangement
to make this broad-based
property ownership spread,
again, with the limitations of
the horrible racial and gender
discrimination,
although I do want
to point out that
the Homestead Act did
allow women to be involved.
Women entrepreneurs were a
big part of the Homestead Act.
In fact, there is a special
part of the National Park
System devoted to celebrating
one woman entrepreneur.
And if you email me, I'll send
you directions how to go there.
We took our children there.
Now, for me, and what marks
the dividing point in my book
is I talk about James Madison,
who, after he became president,
was at the re-writing of
the Virginia Constitution.
And as it were, I'm
colloquializing.
He took out a piece of paper.
And he said, how much land will
there be in the United States
in 100 years?
How many people will there be?
He divided one by
the other, and he
realized that the landed
republic was not doable.
So how would you do that?
And the answer really
came in the Speaker
of the House of
Representatives, Galusha
Grow, a radical antislavery
Republican of Lancaster,
Pennsylvania, who
basically said,
when he retired from
the speakership--
after managing the
Homestead Act for Lincoln,
through the Congress,
Galusha Grow said,
basically, there
isn't enough land.
It has to come through capital
shares and corporations.
And so that's what I'm going
to talk about very briefly.
So the reality we have, quickly,
relatively flat or declining
real wages.
75% of household wealth and
95% of all capital income,
including all capital gains--
so that's all interest,
dividends, and capital gains--
concentrated in the
top 10% of households,
according to the Piketty,
Saez, Zucman recent figures.
We are, folks, at English-level
feudalism numbers.
Let's just not in any
way confuse ourselves.
Education and training
cannot quickly dig most
of the population
out of this feudalism
with the Constitution, which is
what our system is right now.
Returns to education are
not up for real wages
with many areas of education.
95 of 160 million
people are not involved
in a workplace where there's
any question of reskilling.
Technological unemployment
is now recognized
as something that is real.
And it would be very hard to
stage an education and training
program because of the different
places where people are at.
So what do you do with the
persons, the people, men
and women, who are 65
and should be retiring,
but they can't
support themselves?
OK, so we need a
paradigm change.
The post-World War II wage
system cannot reverse economic
inequality.
The fixed wage system for
changing economic inequality
is irretrievably broken.
It is simply a
mathematical impossibility
with these concentration
of capital ownership
and concentration of
capital income numbers
to use the real wage, fixed wage
system to significantly impact
economic inequality.
So a policy choice
is to supplement
the wage system and any
training education efforts--
I'm not against them--
with broadening shares of
capital ownership and capital
income.
So capital shares
at the workplace
for 160 million workers,
and as citizens,
we need capital
shares for 95 million
who are not in the workforce.
In other words, if capital
income is so highly
concentrated and capital
ownership is so highly
concentrated, once you remove
the wage system as a way
to deal with
economic inequality,
you're only logically left
with broadening capital shares.
What are your
other alternatives?
Your other alternatives
are some extreme form
of socialism or
communism, which stands
as a political alternative.
Your other alternative
is to go further
down the road to feudalism
and have enhanced feudalism
with the Constitution.
And your other alternative is
Piketty-level taxes, so 70%,
80% taxes on income and 1% to
3% taxes on wealth every year,
which I think
we're going to have
a hard time with any various
combination of politicians
to pass.
I tell you that capital
shares, in one word, a policy
of shares, is consistent with
the kind of American ideology
that we've been talking
about and also something that
is politically palatable
and even bipartisan.
So very, very quickly,
shares that work
for the 160 million workers,
revise tax incentives
and federal contracts so
every firm will seriously
consider all forms of
capital share programs,
profit-sharing equity
participation programs
in every sector
for every format.
So just to give you an example,
grants of restricted stock
units are used in high tech.
OK, we need to get the tax
laws and the federal contract
purchasing advantages set up so
every high tech company wants
to grant every worker those.
In small business,
families want to control
100% of their equity.
They like to do profit sharing.
I drafted the
profit-sharing tax incentive
that Secretary Clinton
used in her campaign.
And that would have had
profit sharing spread rapidly
through small businesses.
In private equity,
the carried interest,
special carried interest, tax
advantage for private equity
should be withdrawn unless
they have a broad-based profit
sharing or employee
share ownership
plan for their portfolio
companies-- period, the end.
The public stock market
company, the removal
of a small tax incentive by
the first Bush administration,
which eliminated employee
share ownership, large employee
ownership plans, in
stock market companies,
needs to be reversed.
I will say one thing.
I am against what
I will call Enron
forms of employee ownership.
It should be illegal
for workers in ERISA
plans to purchase
their company's stock.
Everything I'm talking about
is grants of profits shares
and grants of stock options.
You know what?
Getting land in
the Homestead Act,
if you visit this woman's
National Park monument,
that was risky for
her and her children.
Capital is risky, but it
should be granted not bought.
So Robert Hockett has
talked about a program,
a massive credit
program, to encourage
employee ownership of
retiring business owners
in publicly traded companies.
This is a program that I
think is very worthwhile
and would push this forward.
But one of the things I think
that Bob's program responds to
is that, by changing
federal contracts
and by changing tax
incentives, that's not enough.
You need a massive
program to allow
workers' trusts,
employee trusts,
to buy existing companies.
Finally, let me end with
the other part of this,
shares for citizens, the
95 million who don't work.
We need federal legislation to
enable citizens' trusts in all
of the 50 states to acquire
income-producing assets
and pay dividends to citizens.
Like the Alaska Permanent
Fund, paying dividends recently
of between $1,000
and $1,500 a year
for every woman,
man, and child, I
would call it universal
capital accounts.
It would be financed--
unlike Alaska,
which is financed from
carbon, as you know--
by a grant from federal and
state governments, seed grants.
But they're mainly by
credit, mainly by credit--
that's why I'm talking about
this here at a monetary policy
conference--
where the income on assets
that they buy with the credit
would be enough
to repay the loans
and fund the
dividends to citizens.
OK, we need federal
legislation to make
this possible in every state.
I'd like a little
tax incentive there.
I'd like to give Warren
Buffett a tax incentive
to contribute
billions of dollars
to the state-assisted trust
funds of Mississippi, Alabama,
and other states which
might not be able to get
the billions they need.
So at our institute,
at Rutgers, we're
establishing a new program
called the Attenborough
Fellowships, which I've passed
around, to begin to sort
of study how to do this.
So do I have any time left?
Or am I done?
MARTIN DRAKE: You have
four minutes left.
JOSEPH R. BLASI: OK,
so this is a codfish,
appropriate here
in Massachusetts.
So the book This Citizen's
Share, in chapter 1,
opens with the story after the
American Revolution of the cod
fishery, which was one of the
largest exports of the colonies
and would be important
for the fiscal stability
of the new government, with
President Washington calling
Thomas Jefferson into his
office, the new secretary
of state, and
basically said, you
got to save the cod industry.
The British had destroyed
the ships, the warehouses,
arrested the sailors.
Because, as John Adams
said, the cod fishery
was the nursery of
the American Navy.
OK, so what Jefferson
ended up doing
is a bill passed the Congress--
Senator Cabot from Massachusetts
was central in this--
which said that based on the
size that its cod ships go out
into Georges Bank, they
will receive a special,
essentially, tax
credit on the allowance
paid directly by the
Treasury, a monetary policy,
but that 5/8 of
this allowance would
be paid in cash for the
workers and 3/8 only
to the ship owners.
If you look into the report
of the American fisheries
in Thomas Jefferson's
hand, which he wrote,
at the beginning of
this whole debate,
the shipping owners
of Massachusetts
sent Jefferson a letter.
And it says, dear Thomas
Jefferson, just send
the entire tax credit to us.
It's right here within
the first four pages.
And there had been profit
sharing in the cod industry
since the late 1600s, the
whole catch, all the fishermen.
And so the bill that passed
Congress said two things--
that the credit was 5/8 to
the workers, 3/8 to the crew.
It also said that the captain
of every ship-- now, look,
we're talking about the 1790s--
had to get every sailor on
the ship, even the cabin boy--
and there were probably
some cabin girls there.
Get every sailor on the ship
to sign a written contract
before it went out into the
water saying that in addition
to this division of
the credit that there
would be broad-based profit
sharing on the entire catch.
And next to every person's
name had to be their share.
OK, and that was
part of American law
for many, many,
many, many decades.
And really, I guess
what I'm talking about
is updating that
kind of approach
with a one word but
new paradigm policy--
shares for all workers
at businesses and shares
for all citizens.
Thank you very much.
[APPLAUSE]
MARTIN DRAKE: All right,
thank you, everyone.
I was going to mute
the screen, but I think
that's an appropriate backdrop.
[LAUGHTER]
So I just wanted to--
JOSEPH R. BLASI: It's too
embarrassing, so take it off.
[LAUGHTER]
It was meant to
flash for a second.
MARTIN DRAKE: I
will mute it then.
So I just wanted to put
one question to the panel
before we open it up to
the rest of the room.
This conference, I think,
as a whole, at least one
main purpose of it is
to create discourse
around a new framing of
money, and obviously,
money as a democratic medium.
And something that
is particularly
evident in Professor
Sklansky's presentation
is that, at one point--
and actually, in this room
earlier today, someone
pointed out that one of the
main obstacles to this money
is a democratic medium idea is
just ignorance on the public.
We're excluded from
discussion of money.
But in the Populist
movement, you
had a widespread education
around monetary issues.
And there was the
populist agrarian revolt,
which was very large scale.
And then even beyond
that, you have
the 1896 election which focused
entirely around money issues.
And I just wanted to
put it to the panel.
To what would you attribute
the disappearance of that?
Is it just that--
why aren't people more involved
in monetary debates today?
What's the reason for the
shift in understanding?
And is it that the system
is more complicated?
Or is there something
else at play?
So whoever wants to start--
ROBERT HOCKETT:
So I [INAUDIBLE]..
I mean, it seems to me
that there's been a kind
of a tendency over the last--
maybe the second half of
the 20th century, they
kind of forget about
what money actually is
and what it emanates from,
what the sources of it are.
It used to be apparently
orthodoxy among people
who looked at banks or who
knew about banks to recognize
that banks were money-issuing
entities, that basically,
banks issued credit money.
Banks did not simply
act as intermediaries.
They didn't simply
redistribute previously
accumulated capital or
previously accumulated
scarce capital.
There seemed to be
a wide understanding
that banks, in a certain
sense, issued capital
of a certain kind,
money capital,
and in essence,
money, being sort
of the credit core of money,
was really the essence of money,
right?
And so at some point
around the 1950s
it seems, the [INAUDIBLE]
economists kind of
flipped over into this
belief that what banks do
is essentially intermediate
scarce capital,
that they have to
receive deposits
before they can actually
lend money, which
was, again, just flatly false.
If you look at any bank lending
transaction this very day,
you'll see right away
that it's false, right?
But somehow or
another, this orthodoxy
took hold of the
economics profession,
it seems around the 1950s
or so, maybe the late 1950s.
And ever since then,
it seems that people,
including progressives, have
just sort of left money alone.
It's either too recondite, or
it's an uncomfortable subject
because they fear that as
soon as it's brought up,
that's going to lead into the
next round of observations
to the effect that, well, we
can't do this because it's
going to be too
expensive, or it's
going to crowd our
capital, or it's
going to elicit the revenge
of the bond vigilantes
or what have you.
So progressives seem to
steer away from money,
I think, partly for that reason.
LENORE PALLADINO: I can add.
MARTIN DRAKE: Do
you want to add?
LENORE PALLADINO: Yeah,
I think to add to that,
I think social movements
broadly in the last however many
decades, if you're talking
about economic inequality,
you're talking about wages
and working people's power.
And so much, rightly,
of our energy
has gone to supporting
collective bargaining
and supporting fights
for unionization.
And as that struggle
has evolved, I think,
for many progressives,
the focus has
been on how to
maintain union power
as a source of people's power.
And so I think that's
obviously centrally important,
but it's taken, I think,
some attention away
from other questions of,
for example, capital share.
How do we actually engage with
business in a different way?
And I think another
piece of that
is that for many people
who are concerned
with social inequality
and economic inequality,
there is no sense you actually
can be part of a business,
right?
Your experience is so
far away from actually
being part of the
business that's
very hard to understand how
you would actually engage
with the business as an actor.
And then if you take it
another further step, how
you would actually
understand yourself
as being part of a public
that has some sort of power
vis-a-vis banks?
How incredibly
disempowered do people feel
vis-a-vis the financial system?
So I think that there
is a lack of awareness,
but there's also just
choices, I think,
strategic choices that social
movements have made that I
think is actually changing.
I think that's part of why
this conference is here.
There's so many
incredible thinkers
right now doing important
work in this space.
And social movements are really
holding on to that in a way
that I think is very exciting.
MARTIN DRAKE: You want to
chime in, Professor Sklansky?
JEFFREY SKLANSKY: Sure.
Your question reminds
me of one of the reasons
that I got into--
that I became
interested in writing
about the history of money.
And it had to do with what I
saw as a kind of profound gulf
of understanding between my
students and the subjects
that we were studying.
Simply put, it's
hard for my students,
and it remains hard for them,
to relate on a visceral level
to the passion and intensity
with which early Americans
debated about what
feel to us today
like arcane and technical
questions, about bimetallism,
for example, or the Bank
of the United States.
And I tell my students Coin's
Financial School was not
written for people like you,
because you're in college.
It was written for people
who didn't go to college.
And it was a huge bestseller,
like William Gouge's
Short History of Banking
in America in the 1830s.
So there is
something to be said,
I think, about what happened
to popular economic theory that
is not popular
thought about, how
do I do well within the
system, but popular theorizing
about the system itself.
And I think it's a
complicated story with money.
In part, it seems to me it has
to do with decisive defeats.
that is, the ways in which
bank-controlled money ceases
to seem like a truly open
question in the absence
of genuine systemic alternatives
after the early 20th century.
But it's also, in
part, bound up with
the way in which I think maybe--
like Robert, you were saying--
the realm of
economics in general
becomes relegated to experts.
And in particular, the monetary
system, the monetary policy
in particular,
comes to be regarded
as a kind of expert preserve.
So those are some things.
MARTIN DRAKE: If you
want to, go ahead.
JOSEPH R. BLASI: So I think
that, speaking more broadly
I've been looking over
American history [INAUDIBLE] I
understand this.
I think the three wars,
the Civil War, World War
I, and World War II
helped concentrate
the power of capital, increased
the power of big capitalists,
increased the size of
the federal government,
which became a oligarchy
supporting this group.
And a lot of the
kind of proposals
that you talked about,
that you alluded to,
that you would like to see,
became kind of impossible
in this kind of discourse.
The Red Scare, whatever
it was and however it
was created and put together,
based in fact or fiction,
short cut a lot of
these discussions.
And then boom, we get
to the post-war period--
huge economic growth,
pension funds, union power.
Now you have firms like
IBM imitating unions
with good benefits
and good wages.
And then we get sort of
seduced by this notion
that I've spoke against,
that the fixed wage
system and the fixed defined
pension system does it, right?
And non-union companies
imitating unions sort of
does it.
And then I think all
of labor economics
gets drawn up in this not
just a historical fact
but an ideology.
This becomes an ideology
for labor economics.
So that's why you can go to
a labor economist conference
with a hundred labor
economists in the room,
and there's still talk about
how we can get the wage system
and skills training to solve
these feudalism-level numbers
that Piketty is
telling us about.
So that's why we need
a paradigm change.
But it started in the
Civil War, this sort
of diminution of
the kinds of ethos
that we've all been discussing.
ROBERT HOCKETT: There's
an irony here too.
Can I throw in really quickly?
Given the importance
of the Civil War
period and the two
World Wars, there's
a really profound irony here.
Because the Civil
War is about the time
that our banking
system became a kind
of public-private franchise.
In other words, basically, as
soon as the National Bank Act
was passed and we created a
system of nationally-chartered
banks that were now issuing
not their own banknotes
but something called
the greenback,
which was a national
currency, and they were under
the comptroller of the
currency-- and of course,
"comptroller" is an archaic
English term for controller--
we basically converted
the banking system
into a kind of
public-private franchise,
where the issuer is
actually the public.
And these private
institutions are basically
disseminating the product.
Basically, instead of
poisoned hamburgers,
they're putting out
greenbacks, right?
And you've got a kind
of a quality control
officer, which is what
a franchisor typically
is in the form of the OCC.
So that's the first irony.
The second irony is that then
we get to the First and Second
World War period, we actually
created the world's largest
financial institution by far,
which was a public institution.
It was first called
the War Finance
Corporation to help basically
mobilize the First World War
effort.
That WFC became a much
bigger institution
during the New Deal period
called the Reconstruction
Finance Corporation,
or the RFC, which
was a gigantic public
investment bank.
And again, its balance
sheet in its heyday
dwarfed that of all the Wall
Street institutions combined.
So the irony here
is that we actually
recognized the centrality of
the public to the money system,
to the financial system,
to the banking system.
We recognized that
the franchised nature
of the financial system with
the public as the franchisor
and individual financial
institutions as franchisees
during those particular
war periods--
first the Civil War, then the
First and Second World War,
and the period in between.
And yet that's also a time
that, as Joseph points out,
the ideology begins to change
where we're thinking of banks
as intermediaries rather than
generators of credit or credit
money.
MARTIN DRAKE: All right,
let's open up for questions.
I'll start with Chris down here.
AUDIENCE: I would
like to see if we
can get Robert to talk about his
big new policy idea that takes
us up to the 21st century
that ended with in your talk
and that Joseph alluded to.
ROBERT HOCKETT: Yeah, so I don't
want to go into great detail
just because we're
sort of short of time.
And I think I've talked
too much already.
But one key here is
that, if you look
at what did we do
in the 20th century
when the land did run
out, well, we adopted--
we basically
developed means that
used public credit to
keep spreading ownership
of two of the legs of
the three-legged stool,
as I was calling it.
All of the mortgage
finance innovations
were also developed in the
very late Hoover and then
the Roosevelt administrations.
And they basically made use of.
They substituted public
credit for private credit,
precisely because public
credit was much more reliable.
It was much more
widely accepted.
And so we publicly financed
a very broad distribution
of home owning.
People often don't seem to
realize that before the 1930s,
fewer than 40% of
American households
owned their own homes.
By the time you got into
the late '30s, early '40s,
we had reached nearly 2/3.
And about a 65% to
66% homeownership rate
among our public seems
to be sustainable.
We only got into
trouble when we tried
to push the envelope
a bit further
and notch it up to
67% or 68%, which
is what we did in the late
Clinton and early Bush years.
That's what turned out
to be unsustainable.
We adopted essentially the same
financial engineering means
to spread higher education.
We actually patterned our system
of higher education finance
after our system of home
finance about 20 years later.
Sputnik seems to have
been the impetus.
1957, the Communists sent
a satellite up into space.
We don't seem to have the
capacity to do it yet.
Three or four of
the rockets that we
try to send into
space with satellites
blow up quite embarrassingly.
We think, oh, my god, we
need to engage in something
like the moral equivalent
of war to spread
higher education more widely.
And it's no accident
that probably
the best known secondary market
maker for education loans
is named a name that sort of
resonates with the best known
of the secondary market
makers in mortgage
loans, Fannie Mae, Sallie Mae.
The Mae is not an
accident, right?
So one way to put--
the plans in the book
that I put out basically
involve other Mae's, you might
say, to try to spread capital.
And you basically, again,
substituting public credit
for private credit in
order to spread ownership
in firms much more widely
on the basis of a number
of different patronage relations
that people have with firms,
not just employment relations
but enduring customer
relations, dependence
on the firm as a kind
of natural monopoly
in a particular area
where one lives, and various
other forms of patronage
relation that can
ethically underwrite
the use of public credit in
order to spread ownership
in those firms by the various
people who have those patronage
relations with those firms.
AUDIENCE: Do you mean
like a patronage dividend?
ROBERT HOCKETT:
Well, I'm not sure.
I'm not sure.
What do you mean
by that, actually?
AUDIENCE: Well, in the co-op,
we get a patronage dividend.
ROBERT HOCKETT: Yeah,
it's a similar idea.
AUDIENCE: OK, yeah.
MARTIN DRAKE: [INAUDIBLE]
yeah, in the front here.
AUDIENCE: So what about the
idea of the social creditors
to issue money through paying
a large sum on the [INAUDIBLE]
single individual at 21?
ROBERT HOCKETT: So you
don't mean Major Douglas.
You mean the kind of baby bond
idea or the stakeholder system
idea.
AUDIENCE: No, Douglas' idea.
ROBERT HOCKETT: Oh, OK.
I confess-- yeah, somebody
else should answer.
MARTIN DRAKE: Maybe
Professor Blasi,
do you know anything about that?
ROBERT HOCKETT: Major
Douglas' plan or scheme.
JOSEPH R. BLASI: No, I
don't know about that.
But Annie Lowrey just
did a book on that idea
too that I think
I would recommend.
ROBERT HOCKETT: One of
the Canadian provinces
adopted the idea.
And the history of that
province's experiment
with the idea is probably
somewhat instructive.
But I don't know the
details, I'm afraid.
MARTIN DRAKE: All right,
in the back there.
AUDIENCE: Yes, I have a
question for Joseph Blasi.
I think many would
certainly recognize
the distributional benefits
of democratizing capital
ownership.
Given, I think, what
Lenore was bringing up
about how we have only 12
years, according to the UN,
to deal with climate
change, I'm a bit concerned
about the potential of
democratizing capital on it's
already extractive terms.
And I think a good
example of that
is Volkswagen, who has worker
representation on boards
and yet happened to conduct
one of the largest frauds that
dealt a major blow to carbon
emissions across the world.
And I'm just curious if
there's any way to reconcile
that concern with your program.
AUDIENCE: Could I ask
you a follow up to that?
MARTIN DRAKE: Sure, you
can add on real quick.
AUDIENCE: Could you
speak more generally
about how effective
representation
of these other stakeholders,
in Germany, for example,
has been practiced around here?
LENORE PALLADINO: Yeah.
MARTIN DRAKE: So let's maybe
kick it to Lenore first,
and then Blasi, you can answer.
LENORE PALLADINO: OK,
so I think that in terms
of representation, I
think your point about--
I think that ownership is
central and also not enough.
And that's why I think that
the idea that corporate purpose
needs to be reframed to have
a materially positive impact
on society is part of addressing
the catastrophe that we're in.
I don't think that's easy,
I think, as a matter of law
how you would actually
determine when
a incorporation meets that.
But that's a real tough one.
But I think that you can
obviously tell right now
that they're not meeting it.
So let's not pretend
we're starting
from some place of neutrality.
We're starting from a place
where there's been tremendous,
over the last 100
years, externalities
of corporate behavior
that created the climate
crisis that we're in
coupled with governments
not responding appropriately
to do anything about it.
So I'll leave more of that, I
think, to you, since you were
asked the question as well.
I think that in terms
of the actual practice,
Volkswagen is a great example
of how it can go wrong.
I think stakeholder
governance, in some way,
is part of why it's both
extremely radical for us
in the US and not radical at
all is that it leaves in place
the business judgment rule.
It leaves in place so
many key attributes
of corporate decision-making
that wouldn't necessarily
solve the broader
problems that corporations
are creating, not only for the
society but even internally.
So I don't see it as
some kind of panacea such
that there wouldn't
be challenges anymore.
I think that it's
simply a different type
of structural solution
that would at least give us
some kind of semblance
of rebalancing power
among different stakeholders
in the firm, not in any way
a complete set of solutions
that I would propose.
JOSEPH R. BLASI: So I would
answer Professor [? Marvin's ?]
question by saying that scholars
of German co-determination
recognize that it's
been weakening a bit.
This does connect
to your question.
Because in the
case of Volkswagen,
yes, co-determination mandated
worker representatives
on the board.
But the overall corporate
governance system of Germany
is so insider baseball,
and so supporting
the managers at such,
and so unable to let
independent objective
stakeholders
have places on the board
that you can't just
blame the co-determination.
Don't just blame the workers
for screwing up Volkswagen.
The other thing is if,
say, in the United States,
you had proxy access where 3%,
5%, 10% groups of shareholders
could simply put a nominee on
our current Stalinist board
election slates and those worker
board members or worker board
member representatives were
backed up by actual equity,
the prudent thing
for equity holders
is to make sure that there
aren't big risk shocks that
will hit the stock like
it did with Volkswagen
and destroy the company.
And so I contrast that with the
insider baseball, little mafia,
German kind of closed-in
boards, a weak stock market
and all that kind of stuff.
And so I don't
really think Germany
had the kind of
stakeholder activism
that Lenore is trying to start
this important discussion
about.
MARTIN DRAKE: I think,
unfortunately, we only have
time for one more question.
So in the back there?
AUDIENCE: So my question is
about competitive marketplaces
for [INAUDIBLE] and [INAUDIBLE]
or just [INAUDIBLE] generally.
We have, as you mentioned, big
paradigm shifts [INAUDIBLE]
about how we want to shift
corporate purpose, how we
want to change who owns shares.
But when it comes to these
different jurisdictions
and the resilience of the
corporate form to serve its own
purposes, how do we even
guarantee that we'll be able
to keep businesses from just
moving on to other places
or structuring it in such
a way that the [INAUDIBLE]
[? of these ?] [? resources ?]
are actually listed
in Netherlands or Luxembourg?
How do we deal with borders?
ROBERT HOCKETT: Surely
within-- and it's
going to be really
quick-- because I
was one of the co-drafters
of the Senator Warren's
ACA, that Accountable
Capitalism Act.
The key point
there, of course, is
that what triggers the
worker representation
requirement on the board
is that the firm reaches
a certain size at
which point, it's
required to seek a national
charter rather than a state
charter.
So there would be no
escaping the regime by moving
from one state to another.
You'd have to move
to another country.
If there was a threat to
move to another country,
I think the best
answer is FDR's answer
to the bankers who threatened
to leave under the New Deal.
He said, well, I
shall miss them.
But I won't miss them too much,
because I'm quite sure they'll
be back within six months.
It's the world's
largest market still.
And even if China surpasses us
as the world's largest market,
we'll be the world's
second largest market.
I don't think most of our firms
actually want to go elsewhere.
I doubt that they actually
want to be regulated by China.
So I think that's a bluff
when they threaten to take
their business elsewhere.
If they want to go
elsewhere, bye-bye,
don't let the door hit
you on the way out.
They'll be back,
as FDR suggested.
And he turned out to be
right about that, by the way.
MARTIN DRAKE: Does anyone
want to add to that?
LENORE PALLADINO: [INAUDIBLE]
[LAUGHTER]
All right.
JOSEPH R. BLASI: [INAUDIBLE]
LENORE PALLADINO: Whoosh.
MARTIN DRAKE: Well,
thank you, everyone.
Thanks, everyone, for coming
and to everyone on the panel.
[APPLAUSE]
