Two words: INVEST and SAVE
Invest
Peoples’ Capitalism would make credit available to every citizen for investment in productive enterprises. The ultimate goal would be to make everyone into a capitalist in the sense that everyone would accumulate a growing portfolio of investments in the means of production. Over time, everyone would receive a substantial income based on ownership of capital assets. Eventually, ownership of capital would become the primary source of income for all.
The amount of credit made available would be sufficient to effectively double the current national investment rate. In the United States, this would amount to about $6000 per capita per year. The mechanism for accomplishing this would be for the Federal Reserve to open its discount window and issue credit to member banks for self-liquidating loans to individuals for investment in approved enterprises. Approval would be based on criteria similar to those routinely employed by the investment banking community. Examples include established mutual funds, IRAs, and investment plans such as the Thrift Savings plans available to government workers. Other investments might qualify, depending on approval criteria of the member banks. Collateral would be in the form of ownership shares of the enterprises in which the investments were made. Details of one possible mechanism for achieving this are described by Kurland et al. (2004) in the book Capital Homesteading. These loans would have a payback period of 30 years. Insurance against default would be financed by a service fee estimated at 3% of the outstanding balance per year.
Save
Peoples’ Capitalism would provide a new tool for fighting inflation. Economists agree that price is determined by supply and demand, and demand is largely determined by disposable income. If disposable income is diverted into savings, demand falls and prices fall. Therefore, Peoples’ Capitalism would substitute mandatory savings for monetary restraint for fighting inflation. The rate of withholdings would be graduated with income and indexed to the rate of inflation. Consumer income would thus be diverted into personal savings in the amount required to achieve a desired effect on inflation. These savings could be held in personal accounts such as Certificates of Deposit or Individual Retirement Accounts. These would earn interest at market rates, but could not be redeemed for a period of at least five years. The rate of savings withholding would be adjusted by formula every two weeks based on the latest measure of inflation.
Withholding savings from consumer disposable income would provide a much more powerful and fast-acting mechanism for controlling inflation than adjusting interest rates. This would enable the Federal Reserve to focus monetary policy entirely on investment policies designed to maximize productivity and economic growth. Interest rates could be used for other purposes such as controlling the international flow of investments.
Doubling the nation’s investment rate without inflation would dramatically increase the rate of economic growth. Estimates are that economic growth would increase to between 6% and 8% per year. This would assure a strong job market and opportunity for upward mobility to all those with talent and ambition. It would also assure rapid development and implementation of more efficient and more environmentally friendly technologies. Productivity would grow, profits would increase, quality of goods and services would rise, and costs of production would fall.
Within a decade or two, everyone would begin to receive income from their investments. Within a generation this would eliminate poverty in the United States. By 2050 every adult citizen would receive investment income of over $50,000 per year.
Everyone would be a capitalist!