The Capitalist Manifesto Paperback – February 16, 2022

I first read The Capitalist Manifesto in 1960. Louis Kelso, a prominent economist and Mortimer Adler famous for the Great Books Program, professor of the Philosophy of Law at the University of Chicago, author of several popular books on affairs of the mind, published this book in 1958. I think they hoped to change the world, but they did not. So I present to you a book that did not succeed in becoming a movement, but in rereading it I rather wish it had. Or maybe its ideas are still perking along behind the scenes.Their world changing theory was that democracy is the only method of government worthy for human beings and Capitalism is the only system that can sustain democracy, because only in possession of the means of production can a person be truly free. Some of the founders of our nation believed this so confidently that they wanted to restrict the vote to land owners, farming being the major means of production.I was cut short in a meeting with the President of a brokerage firm who normally was a jolly slap-em-on-the-back kind of guy. His secretary caught me on the bounce and apologized for him. “He is meeting with the Branch Managers later this morning and he always gets nervous before those meetings.” “Why?” I ask. “They are three layers of hierarchy below him. What harm can they do to him?”“ You do not understand,” she said. “This is the largest cohesive block of knowledgeable company stock holders he will ever face. If he gets crosswise with them, he can lose his job.” Part of the compensation for all brokers and more so for all managers of brokers was stock. After the years and positions held in the company, by the time a person became Branch Manager, he was also an owner. Big time!He (sorry but in that day they were all men) had a vote. They were Capitalists. Without that ownership… Well I sat in a meeting of about one hundred executives in a major company and listened to the president explain to all these expensive suits, that in the last analysis the only vote that counted was his. It was all very light-hearted and every one laughed but I am confident everyone got the message, (it was not news). They were very well paid hired hands. They owned nothing. And could be gone tomorrow.So in order to have a democracy, say Kelso and Adler, people need to be on solid ground. They need to own the means of production.Another reason they need to own the means of production is that the mantra of some that workers are growing more and more productive and therefore should be able to fulfill their life-time needs for goods and services from a just salary is just not so. The worker counts for about ten percent of production. The means of production owned by the capitalist count for ninety percent.A simple example: A person runs a typewriter. This person has the typewriter replaced with a computer. Now the person and the computer function at ten times their previous effectiveness. Who deserves the reward for that increase, the typist or the capitalist who provided the computer? Since in my own scenario I was both the typist and the capitalist this decision did not come up. But it was abundantly clear to me that the typist was no better than before. It was the machine that was doing the work.The system is already rigged against the capitalist. The owners of the means of production deserve much more than they receive but laws and taxes work against their receiving more.Why is there not a Capitalist rebellion? Ayn Rand wrote a book about one, Atlas Shrugged, but despite that so far Atlas has not shrugged. Three reasons:1) Capitalists are doing fine already. Compared to some, their “fine” is sickening.2) Distort the system any less and there will be no one to buy the results of production. (Henry Ford raised the pay on his assembly lines so that there would be customers out there who could afford his cars.)3) We would have a depression to end all depressions. What capitalist wants that. Outside of humanitarian reasons, once again, who is to buy your cars? How long will you be able to fund the guards you will need at your gate. On the other hand our Socialistic Capitalism is not working very well. The systems in place to spread the rewards of production from the capitalist to those who as human beings need more fall short of the need. While within the system of Capitalism the capitalist is not fairly rewarded, there is a larger reality called Divine Justice, and it is that justice that condemns the present system of capitalism.Why not change the game and move to Socialism?Because that move is mostly a change of names and change of masters, not freedom at all. In Socialism the means of production are owned by the state. Instead of corporate ownership and management of the means of production, elected officials and government bureaucrats control the application of capital. So far that has not worked well. The intelligence to meet market needs profitably and the intelligence to be elected are seldom found in the same person. At the moment I write we are in the midst of a government shutdown. What would that look like if at the same time that meant a business shutdown? Kelso and Adler say that the problem is that there are too few capitalists. The fruits of production are spread among a few people. What if most people were reliant on their ownership of capital for some or all of their needs?Not so far fetched. Many of us retirees are at least partially reliant on the savings of a lifetime invested in capital markets either by ourselves or by others for our benefit. (For instance, union or corporate retirement plans are invested in stock, the ownership of capital.)There were times when instead of a few major owners there were many. In the seventeenth century among the founding figures in the Religious Society of Friends (my own religious home) were George and Margaret Fox, estate owners and Capitalists in their own right with the funding to allow George to preach a lot and go to prison a lot, and funding to support Margaret holding meetings at the estate which served as a strategy center and a clearing house for many of the needs and problems of the fledgling society. An expensive proposition. The history of our religious society is well sprinkled with Capitalists ranging from candy company owners, to bankers, to farmers.On this side of the pond, there was William Penn with a large enough estate to be able to fund the Pennsylvania legislature. (Several estates actually. Some in Ireland.) The unintentional founder of my brand of Quakerism, Elias Hicks, in the early nineteenth century in his eighties was on the preacher’s trail much of the time. Where did the money come from? The farm. Hicks was a Capitalist.No Walmart. No Walgreens. No factory farms. No Honeywell. No Ford. No General Electric, no Cargill. Many small businesses make many Capitalists automatically, but so can large business. Each business would have to have many more owners.This would take some work. Kelso and Adler have thought of what needs to be done. Repeating here the pages of specific suggestions would be a little too much, about 100 pages too much. For them you must read the book. But here are the three broad targets for change:1) Broaden the ownership of existing enterprises. For instance encourage stock holding plans for employees.2) Encourage the formation of new capital and the organizing of new organizations owned by new Capitalists.3) Discourage the concentration of the ownership of Capital by households past a certain level consistent with the philosophy of a Capitalistic nation. The Capitalist Manifesto did not excite the nation, or even create a critical mass. Yet, both Hillary Clinton and Bernie Sanders had a plank in their platforms establishing college funds for the children of indigent families. (It was a no risk and little reward plan, I believe. A more adventurous and fruitful approach could have been taken. A 60/40 stock and bond plan for instance, managed by a holding company of your choice.)I do not think moving to a new economy based on Capitalism of the many would be all that hard. I do think that establishing a consensus to do it would be extremely difficult. So much energy has been spent trashing Capitalism that most would find it difficult to see a broader Capitalism as the solution to our problems.A recent article in The St. Paul Pioneer Press, (1/21/18) comments on the expanding millionaire class. In 2016 more than 9 million households had a net worth of $1 million or more. In 1983 only 2.4 million had cracked that threshold. With the recent surge in the market it is possible that 10% of our households are millionaires. (Numbers corrected for inflation.) The author does not know why that is happening. He has one reason and that is that in the middle class average debt has dropped from $98,100 in 2007 to $69,900 in 2016. (Membership in this millionaire club is based on total assets minus total debt.) But that is a fraction of the explanation, ($30,000 per millionaire.)A friend of mine was a personnel manager in a 60,000 person corporation. He was paid a midrange professional salary. He was not very far up the corporate ladder, and going no further. He had a mathematical brain and was invested in the stock market. He retired at fifty and played the market until his death a couple of decades later. Not rich, but comfortable. And that gave him the time to care for his developmentally disabled son. What he did requires a skill I do not have, nor do many, but it can be done.If the author of the opinion piece had read Kelso/Adler he might have thought how many people decades ago about the time the Manifesto was written, sat with a financial planner who told them, “To make money you must own. Since you are not a big hitter nor a brilliant calculator of possibilities we will attempt to make this as safe as possible, but despite the risk, ownership is the only way to secure your future.” They bought into a stock fund, squirreled away a little money here and a little money there. Drove second-hand cars, sent their kids to public schools, traveled rarely. Reinvested dividends. And one day they found out that they were the millionaires next door. Interviews with them indicate they feel pretty much the same as before they crossed the magic line. They describe themselves as middle-class or upper middle-class.While the author applauds the, to him, surprising growth of millionaires he mourns the fact that there is a growing gap with the wage earners other than the high end professions and he does not know what can be done. He is ignoring the fact that 90% of productivity should be attributed to capital. What happens to the cleaner when the cleaning machine can work its way all around the building itself? How can we set the system up so that cleaners own the cleaning machines? Well, not so hard. My plumber has a sign on the side of his truck that claims he works for a local moderate sized plumbing company. Yet, he owns that truck, and the tools. Because of that in addition to being paid for his personal service, he is also paid for the use of the truck and tools. He is a Capitalist.When a large group of business leaders were briefed by a high ranking government official on the implications of the new tax cuts and was asked if they would use the money from the corporate tax cuts to increase wages a small handful said they would. The rest, flying in the face of the government intentions, apparently had another place in mind where the money would do them more good. All that is left after not improving wages is improvement in capital. This includes a boost to the owners, a raise in dividends. And it might include several new self-reliant cleaning machines. Watch this one to see if what I think inevitable happens. We will know in a few months. Look at $1,000 bonuses skeptically. For someone making $50,000 that is a 2% one-time bump, not a raise that can be built on next year. But a bump that is the basis of chest thumping from the executives of the company to the president of the United StatesIf Kelso and Adler are correct there is a radical answer. Spread the wealth producing ownership. There are steps to be taken. All that is needed is a political consensus.Ah, there is the rub!But the rub is for the nation as a whole. You, on the other hand, or your children, may be able to do something. Read The Capitalist Manifesto by Louis Kelso and Mortimer Adler and see what you think.

Great condition

A bit pedantic and repetitive. Unlikely to be read by those who ought to read it. Way into Ayn Rand and egoism. Better to read Rand directly, in my view.

The Capitalist Manifesto was written during the Cold War, when capitalism and communism were competing economic systems. In part one, Lou shows where he thinks Karl Marx made his big mistake and says: The path the capitalist revolution will take faces in exactly the oppositedirection from that taken by the communist revolution. It seeks to diffusethe private ownership of capital instead of abolishing it entirely. It seeksto make all men capitalists instead of preventing anyone from being acapitalist by making the State the only capitalist.Part two of the book is Lou's program for the "capitalist revolution." It would help households become owners of corporate shares. They would pay for the shares through bank loans. Dividends on the shares would first repay the loans. After that, the dividends would be a major source of household income.Each element of the program calls for new legislation. One major government program would make credit easily available for households to invest in businesses. A "Capital Diffusion Insurance Corporation" would be federally chartered, to insure against some of the risks, such as the failure of a business to sell all of a securities offering and the catastrophe to a borrower from multiple business failures. This insurance is intended to lower the bank's interest rate so that the borrower's loan payments would be less than the expected dividends on the shares.To provide cash for loan repayment and household income, corporations would be required to pay out their entire net income in dividends. (Younger businesses could retain earnings for growth and reserves against risks.)Lou and I agreed about the need to broaden the ownership of capital and increase the number of individuals who could receive investment income, as a supplement to work earnings. We had three differences about how that could be done:1. Lou's programs placed an intermediary between the individual owners and the business. DPOs create a direct relationship between owners and management.2. Lou's programs require extensive government legislation and oversight. Direct offerings use the existing legal framework, without any special treatment.3. Lou's programs used Wall Street investment bankers, including Kelso & Co., in packaging and distribution. We have prepared electronic toolkits for use by the business itself in designing and completing direct offerings.Lou believed passionately that each of these three elements was necessary. He told me that the intermediary was needed because the new owners did not have the experience or training to manage direct investments. He said this was a temporary measure and could gradually be eliminated as more people became capable of capital management. In our direct public offerings, over 90% of the investors have never owned shares directly in a business before. Nor do they have an account with a securities broker. Nevertheless, our interviews show that they read the offering documents and perform the same "risk/reward analysis" as securities analysts and investment managers.Government intervention was necessary, Lou argued, because vast borrowings were required for workers to invest in businesses. The financial institutions would not extend that credit without government guarantees, tax benefits or other incentives. As to our direct offerings, one of Lou's followers referred to them as a "Marie Antoinette" response. (When told the French people could not afford bread, their queen reportedly said: "Let them eat cake.") The point of the comment being that households don't have money to invest, unless they can get loans that are repaid from the investments' income. However, we have seen that "workers" will choose to allocate money to owning shares in a business, rather than spend it on something else. The money is there, if it can be diverted from consumption. Government-supported borrowings are not necessary. (Ironically, Paul Samuelson, Nobel Laureate in Economics, referred to Lou's programs on television's "60 Minutes" as: "It really has a Marie Antoinette-ish ring to it. `Let them own capital!'")Lou's programs are complex and require professional intermediaries and their advisors. The ESOP and all the other "_SOPs" involve creating trusts and intricate financing negotiations and documentation. There is clearly a role for investment bankers and their lawyers. Direct offerings rely on simple structures that have been used for centuries. We have demonstrated that they can be done without these financial engineers and sales forces.These differences do not detract from the benefits that I and many others have gotten from Lou's writings and examples of his theories in action.

Kelso methodically lays out is thesis, and anticipates arguments well. These ideas could be the building blocks for a new political economy.