Consumer Credit Versus Capital Credit: Exposing the Systematic Roots of Income Inequality
There is a BIG difference between CONSUMER CREDIT and CAPITAL CREDIT. And understanding this difference will help readers understand why American income has been so unevenly distributed, especially over the past four decades, and why the wealth gap between the few and the many threatens to undermine American democracy.
Consumer credit, for one thing, is easy to obtain. Fill out some forms online, and unless you’re having some real financial trouble, you’ll receive your own personalized plastic credit card along with all accompanying documentation (lots of fine print) in a few days.
With consumer credit in hand, you can buy anything from gas at the pump to beer at the stadium to a college education (do student loans sound familiar to anyone?). A consumer credit card company wants you to buy all kinds of things on credit (often at ridiculously high interest rates, formerly called usury), to pay later, while accumulating a mountain of debt that will allow you to lending institution make it work for you. the rest of your days to pay your debt to them.
In contrast – Equity credit …
On the other hand, equity credits you to buy wealth-producing capital assets (i.e. land, machinery, buildings, corporate stocks), to repay the loan at a reasonable rate until you own the asset and are reaping all the benefits. financial resources of owning wealth-producing capital. If done correctly, the loan is repaid out of FUTURE EARNINGS (that is, dividends) rather than out of the borrower’s pocket.
However, equity credit is much more difficult to obtain (try to buy a home sometime) than consumer credit. Generally speaking, borrowers must be able to show that they do not need the money (meaning they have ample collateral to back the loan) before the lender will agree to something. The result is that most wealth-producing capital assets that pay lucrative dividends to their owners are accessible to ONLY a small percentage of people – the 1% to 5% who can show they don’t need the money.
Almost everyone else is effectively left out when it comes to accessing capital credit and owning capital assets that create wealth. This is the basic reason for the wealth gap that has transformed American democracy into a 21st century American oligarchy.
Kelso and Adler enter.
Enter a gentleman named Louis O Kelso, who in 1958 published a book titled “The Capitalist Manifesto,” in which he (and co-author Mortimer Adler) suggested that every American citizen should have access to equity credit with which to buy wealth that produce capital assets at reasonable interest rates and in the process actively participate in (rather than being left out of) America’s highly productive free market economy.
Such a strategy, according to Kelso and Adler, would democratize a free market economy. Such a strategy would maintain the essence of free market private ownership while avoiding the monopolistic tendencies that have historically undermined political democracy in laissez faire capitalist economies. In other words, it would save the free market from its own historical tendencies toward self-destruction.
By democratizing the free market (while creating a lot of demand through a second “investment income” for each citizen *) and systematically narrowing the malignant wealth gap, Kelso and Adler predicted even greater economic expansion than that which followed. Abraham. The Lincoln Homestead Act of 1863, which gave every American citizen 160 acres of land (a type of wealth-producing capital asset), if they were willing to care for it. But where the land is finite, the business and corporate opportunities (as well as the economic possibilities) are endless.
The oligarchs successfully sidelined Kelso / Adler
However, the oligarchs have managed to keep the revolutionary ideas of Kelso and Adler at bay and, to this day, the majority of the public thinks there are ONLY 2 options when it comes to economics. There is the historically right-wing, free-market, laissez-faire capitalist approach of the Republicans. And there is the approach of the Democrats that historically leans to the left and favors the unions.
The right drives tough individualism and personal responsibility, while the left drives enlightened self-interest that recognizes that we are all in this together. According to conventional wisdom, the political pendulum swings between these two poles and in the process the Kelso / Adler prescription has been effectively ignored by the “free press.”
Enter the Capital Homesteading Act
But that doesn’t mean that the “property economy” is dead and gone. In contrast, over the past half century, thousands of employee-owned businesses (ESOPS) and worker-owned cooperatives have sprung up across the country. When done for the right reasons (not to bail out a bankrupt airline), these examples democratize the conventionally despotic corporate plantation.
Professor Rick Wolfe, Dr. Guy Alperovitz, and Dr. Ted Howard are unabashed and vocal advocates of worker-owned cooperatives based on the Spanish Mandragon model. Outbreaks of this can be found in places like Cleveland, Ohio (Evergreen Co-op) and Jackson Mississippi (championed by the now-late Mayor Chokwe Lamumba). **
And a resistant gang of renegades known as the Center for Economic and Social Justice, led by Dr. Norm Kurland, has developed and introduced the Capital Homestead Act, which exchanges land for capital assets and, in the process, provides everyone US Citizens Access to Equity Credit (by Adler / Kelso). The Capital Homestead Act is based on PRIVATE PROPERTY that will be applauded by those on the right. However, it also explains the fact that WE ARE ALL TOGETHER, which will be applauded by those on the left. In other words, the Capital Homestead Act takes the best of both parties and fuses them into a 21st century idea whose time has come.
Equity credit: an idea whose time has come
In any case, the time has come for an alternative solution because the arguments of the mainstream right and those of the mainstream left have fallen short of empowering individual citizens, recognizing that we really are all in this together, and when it is about democratizing a free market economy. The property economy is the key to the future for anyone who really wants a political democracy.
* The second income is generated from distributed dividends NOT from accepting a second job.
** Rutgers University also offers its annual Louis O Kelso Fellowship, which places academics from across the country with some backgrounds in this unique line of thought.
In reality, people around the world are interested in the concept of property economics as exemplified by the Global Justice Movement and through presentations by internationally renowned scholars such as Professor Stefano Zamagni.