As was promised in page vi of the Preface, feedback from readers will be incorporated into future editions of this book. This insert is an attempt to keep that promise and make this book a genuine and update-to-date vehicle for debate.
Much early critical response to Peoples’ Capitalism has centered around the fear at the National Mutual Fund would pose a potential threat to liberty because of its size and centralized authority. This fear, I personally believe, is somewhat exaggerated, perhaps in reaction to the recent events of Watergate. It seems to me that the key issue is not centralization of power so much as accountability and control of power. As suggested in the text Chapter VI, the dealings of the National Mutual Fund would be open to public scrutiny, particularly by the press, and under the control of effective checks and balances. It is often easier to assure equity and fair dealing in a single large agency than in a wide diversity of smaller ones. A well known example of this is that the federal government tends to be more honest and free from corruption than city or county governments (Watergate not withstanding). The reason is simply that scrutiny by the press is more intense and sophisticated and there are usually large and powerful blocks of diverse opinion that act, as checks and balances or at least as watchdogs. Accounting procedures tend to be more exacting and there is a greater dependence on rule by law as opposed to dependence on force of personality. It is my feeling that a National Mutual Fund would be more open to scrutiny and public pressure than more widely diffuse mechanisms.
Nevertheless, there are many good reasons for making at least a large percentage of investment decisions on a local rather than a national basis. It is certainly possible to conceive of the National Mutual Fund as merely a conduit through which funds are channeled to local banks and lending institutions where the final investment decisions are made. The NMF could simply grant credit to banks with the provision that the money be used for primary stock purchases with good prospects for long-term return on investment. It should be possible to devise sufficiently rigorous accounting mechanisms to prevent corruption, and the amount of credit granted to each institution could be made dependent on its performance in producing a high rate of return on previous investments. This would assure both honesty and efficiency without unnecessary restrictions on local decisions makers regarding specific investments. Rules similar to those set up by the Small Business Administration could be used to define qualifications for small business seeking to sell stock to local NMF sponsored banks. Normal accounting practices regularly used by investment bankers could determine qualifications for larger corporations. Businesses that felt discriminated against could appeal decisions to the NMF or could seek redress through the courts.
The overall effect would be the equivalent of a dramatic easing of money by the Federal Reserve with the assurance that all of the newly created money would be used only for capital investments with good prospects for long-term payback. Furthermore, the channeling of this investment capital through the NMF would assure that the resulting profits would be directly converted into income for everyone.
The inflationary impact of this new easy money policy would be mitigated by the highly selective nature of what the money was used for. None would be used to stimulate consumer demand directly. All would be used to build new capital stock and increase the efficiency of production. Both of these are strongly deflationary. Furthermore, the Demand Regulation Policy described in Chapter IX would act to temporarily remove this newly created money from the economy before it could indirectly stimulate consumer demand.