CAPITAL HOMESTEADING For Every Citizen Copyright © 2004 Center for Economic and Social Justice Published by Economic Justice Media P.O. Box 40711, Washington, D.C. 20016, U.S.A. (Tel) 703-243-5155 • (Fax) 703-243-5935 (Eml) [email protected] • (Web) www.cesj.org All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopy, recording, or otherwise, without the permission of the publisher and proper attribution. International Standard Book Number: 0-944997-00-7 Library of Congress Control Number: 2003113509 First Edition Design, layout and illustrations by R.L. Brohawn CAPITAL HOMESTEADING For Every Citizen A Just Free Market Solution for Saving Social Security Norman G. Kurland • Dawn K. Brohawn • Michael D. Greaney © 2004 Center for Economic and Social Justice (CESJ) Published by Economic Justice Media Updated and expanded from a report prepared by CESJ under a grant by the William H. Donner Foundation, December 2002. www.cesj.org “All men are by nature equally free and independent, and have certain inherent rights, of which they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety.” George Mason (“Father of the American Bill of Rights”) Article 1 of the Virginia Declaration of Rights, adopted June 12, 1776 “Power naturally and necessarily follows property.” Daniel Webster Address, Massachusetts Convention, 1820 “I take it that it is best for all to leave each man free to acquire property as fast as he can. Some will get wealthy. I don’t believe in a law to prevent a man from getting rich; it would do more harm than good. So while we do not propose any war against capital, we do wish to allow the humblest man an equal chance to get rich with everybody else.” Abraham Lincoln Campaign Speech in New Haven, March 6, 1860 “Over one hundred years ago, Abraham Lincoln signed the Homestead Act. There was a wide distribution of land and they didn’t confiscate anyone’s already owned land. They did not take from those who owned and give to others who did not own. We need an Industrial Homestead Act.” Ronald Reagan Speech to the Young Americans for Freedom, July 1974 “Tax policy alone may not be adequate if expanded ownership is ever to become a reality. It seems to me that we will have to do something on a monetary side as well and I am speaking here in terms of using the government powers through the Federal Reserve Bank and others to see to it that loans are made available on more reasonable terms that help workers acquire capital.” Senator Russell B. Long (Longtime chairman of the Senate Finance Committee and political champion of the Employee Stock Ownership Plan) Keynote address at Harvard University, April 17, 1982 “[The challenge is] to make the world work for 100% of humanity in the shortest possible time through spontaneous cooperation without ecological offense or the disadvantage of anyone.” Buckminster Fuller (Philosopher, world design scientist and inventor of the geodesic dome) Attributed to The World Game, mid-1970s CONTENTS ACKNOWLEDGMENTS xi EXECUTIVE SUMMARY xv INTRODUCTION xvii Flaws in the Foundation ................................................................................. xviii Social Security and Enron ................................................................................. xx Social Security and the Wealth Gap ................................................................. xxii Addressing the Social Security Problem from a Systems Perspective ............. xxii I. THE PROPOSAL IN BRIEF 1 A Capital Homesteading Solution for Social Security ......................................... 2 Re-Envisioning the Future of Social Security ..................................................... 3 How Would Capital Homesteading Work?...............................................................4 Insuring Minimum Social Security and Medicare Benefits ................................ 7 Capital Homestead Accounts (CHAs) vs. Personal Savings Accounts (PSAs) ..... 7 Genuine Social Security: Sharing in a Growing Economy .................................. 9 II. THE CONCEPT OF CAPITAL HOMESTEADING 11 The Historical Roots of Capital Homesteading ................................................. 11 Revisiting the Wisdom of George Mason and Abraham Lincoln ...................... 12 Support for Capital Homesteading .................................................................... 13 Obstacles to Capital Homesteading ................................................................... 14 A Free Market Way To Generate Mass Purchasing Power .................................. 16 Restoring Say’s Law of Markets ......................................................................... 18 The Systems Logic for Spreading Ownership Incomes ..................................... 20 The Four Pillars of a More Free and Just Market System: A New Policy Framework .................................................................................. 21 Universal Access to Capital Ownership (The Moral Omission) ........................................ 22 Limited Economic Power of the State ................................................................................ 23 Restoration of Free and Open Markets .............................................................................. 24 Restoration of Private Property ......................................................................................... 25 III. AN OVERVIEW OF CAPITAL HOMESTEADING 27 Component 1: Democratization of productive credit ....................................................... 27 Component 2: Simplification of tax systems .................................................................... 28 Component 3: Linkage of all tax and monetary reforms to the goal of expanded capital ownership ........................................................................ 28 viii CAPITAL HOMESTEADING FOR EVERY CITIZEN IV. POLICY OBJECTIVES OF CAPITAL HOMESTEADING 29 Promote Private Sector Growth Linked to Broadened Ownership ................................... 29 Save the Social Security System ......................................................................................... 29 Stimulate Maximum Growth, with a Balanced Budget and Zero Inflation Rate ............ 29 Stop Federal Reserve Monetization of Government Debt ................................................. 29 Stabilize the Value of the Currency .................................................................................... 30 Reduce Dependency on Past Savings for Financing Growth ............................................ 30 Establish a Tax System That is More Accountable to Taxpayers ...................................... 30 Discourage Monopolies and Monopolistic Ownership ...................................................... 30 Introduce a Market-Driven Wage and Price System ......................................................... 30 Restore Property Rights in Corporate Equity .................................................................... 31 Offer a More Just Social Contract for Workers ................................................................... 31 Encourage More Harmonious Industrial Relations .......................................................... 31 Downsize the Public Sector ................................................................................................ 31 Promote a Life-Enhancing Environment .......................................................................... 31 Initiate New Challenges for Multinationals ...................................................................... 32 Establish Workable Demonstrations of Capital Homesteading at the Community, State, Regional and Global Levels ...................................................... 32 Promote a New Global Monetary System .......................................................................... 32 V. BASIC VEHICLES FOR DEMOCRATIZING CAPITAL CREDIT 33 The Employee Stock Ownership Plan (ESOP) ................................................... 33 The Capital Homesteading Account (CHA) ....................................................... 36 The Community Investment Corporation (CIC) ............................................... 36 The Customer Stock Ownership Plan (CSOP) ................................................... 37 VI. SUPPORTING VEHICLES FOR FACILITATING CAPITAL HOMESTEAD LOANS 39 The FCCC: A New Type of “Fannie Mae” for Bundling Capital Homesteading Loans ....................................................... 39 The FCIC and CCRC: Managing Risk Through Capital Credit Insurance and Reinsurance ......................................... 40 Capital Portfolio Insurance................................................................................ 41 VII. REFORMING THE MONEY AND CREDIT SYSTEM 43 Capital Credit: A Better Way to Finance Private Sector Growth......................... 43 “Pure Credit”: Society’s Key for Freeing Economic Growth from Past Savings .... 44 Creating Money: The Role of the Federal Reserve System ................................ 47 An Untapped Source for Private Sector Growth ................................................ 50 Moving from a Debt-Backed to an Asset-Backed Currency .............................. 52 Why Focus on the Federal Reserve? .................................................................