Part 2> The Next Step in Human Advancement: Economic Democracy
A Talk Delivered by Louis O. Kelso at the University of the Americas Graduation Ceremony, Mexico City, June 8, 1990

Karl Marx, who shook the world with his Communist Manifesto in 1848, made the same mistake as Smith. But since he wrote three-quarters of a century after Smith, he had less excuse for failing to see that the Industrial Revolution was changing the nature of work - or production.

• Marx's stirring descriptions of the gigantic, self-powered capital instruments of his day - Nasmyth's steam hammer was one - are unequalled in economic literature.
• How could Marx describe these autonomous machines in action, and record the human labor they destroyed, yet still proclaim that only labor produces wealth?
• Marx thought that capital (improved land, structures, machines, processes and capital intangibles) was merely congealed labor power.
• He thought that the value of capital represented theft by its owners - the capitalists - from helpless labor, and that the evils arising from privately concentrated economic power could only be corrected by abolishing private property in all producer goods and transferring ownership to the state.

Today the world is awakening to the fact that Karl Marx's solution was not a solution at all, but a terrible mistake that destroyed both political freedom and the free market. That, ultimately, it negates the Industrial Revolution.

I do not think that Marx could have made such a disastrous mistake had he read and understood Aristotle's utopian vision of automated production, in which every person would be endowed with additional economic power through the ownership of mechanical slaves.

• We are in no position to criticize either Smith or Marx for failing to understand the meaning of the Industrial Revolution, or its effect on work and income distribution.
• We have failed to understand it ourselves.
• But there is more to Marx's work than his erroneous views on private property in capital. There is another of his basic teachings called the "Marxian analysis."
• Marx greatly admired capital as the embodiment of technological change - the prize of the Industrial Revolution.
• He lauded the awesome power of capital to turn out vastly greater quantities of goods and services of higher quality than could ever be done by labor alone.
• But he realized that if only a few people acquire and own the capital assets, then those people will be in a position to exploit and dominate the great non-capital owning, labor-dependent majority - the "proletarians."
• This reinforced his belief that private property in capital must be abolished.
• Marx believed that capital is such a good and necessary thing for society and humanity that it is wrong for only a few to monopolize its fruits.
• Can we in all good conscience say that Marx was wrong about this?

Where Does This Leave Us Today?

Public ownership of capital leads to the totalitarian state because it consolidates political and economic power in the bureaucrats.

• But in private property economies, conventional finance is concentrating capital ownership faster than ever, while technological change makes capital ever more productive.
• Smith said every consumer must be a producer, and vice versa.
• But capital is doing more and more of the producing.
• More and more people are held in poverty because they are not capital-equipped to earn a good living.
• So what do we do now?
• What should the faltering rich market economies do?
• What should the restructuring socialist economies do?
• What should less-developed economies like Mexico do?

The answer is: adopt economic policies that acknowledge the need of your citizens to become capital workers as well as labor workers.

• The means for doing this have already been invented. One of them - the Employee Stock Ownership Plan (ESOP) - is in use by 10,000 U.S. corporations.
• More than ten million ESOP participants have become or are on their way to becoming capital workers. But quite as important, ESOP companies are becoming more profitable and competitive. They are expanding, hiring more people, paying more taxes.
• It is not uncommon for participants in successful ESOP companies to retire with hundreds of thousands of dollars in company stock. This stock, sold back to the ESOP upon retirement, or retained for its earning power, its "wages," will provide comfort and security as long as its owners live.
• Capital work is the best source of lifetime employment. It is the ultimate job security.
• Other financing methods embodying the ESOP's logic can make capital workers of civil servants, teachers, nurses, artists, senior citizens and others outside the corporate sector.

What do these ideas mean for members of the Graduating Class of the University of the Americas in June of 1990?

One of the questions almost certain to be on your mind today is: "Now that I understand what the Industrial Revolution is all about, how do I position myself to earn a good living for me and my dependents during the rest of my life?"

If what I have said this morning is true, as I believe it is, then the traditional advice to graduates, good though it is, is no longer adequate.

The traditional advice is:

• Get a good job. Work hard, do the best you can to be a credit to your family and to your country.
• Live modestly in order to save as much as you can to educate your children and to support yourself and your family after retirement.

As far as it goes, this is still good advice for young people, but it is based on the idea that the only way to earn a living is by getting and keeping a job - in other words, by performing labor work. That idea is obsolete.

• In the post-industrial era, there is another way: Now most goods and services are produced, and incomes earned, by people working through their personally-owned capital.
• Only through capital ownership can you engage in production and earn income after you leave the labor market because of age, illness, or business failure.
• The one thing we do not tell young people who are entering the economic world is what you most need to know: how to acquire capital.

I am going to give you some general guidelines on how this can be done.

The logic of capital acquisition is, and has always been, to buy producer goods - capital assets - on terms where they will pay for themselves, in a reasonable period of time.

• I have invented methods of business finance which exploit this fact for people born without capital ownership - and that means almost everyone in the world today.
• I have already mentioned the Employee Stock Ownership Plan (ESOP), which is the best known of these new democratizing self-financing capital acquisition plans. There are seven other financing methods, each of which use the same logic.
• Several of these tools are even more powerful and versatile than the ESOP.

The national economic policies of all market economies - Canada, the U.S., Mexico and all others - are obsolete.

• The policymakers have not thought through the cause and effects of the Industrial Revolution.
• They still assert, as a matter of policy, that we can all live well on jobs alone.
• It is false.
• It is misleading to the people.

Let me sharpen that statement: You live in a great democracy. If the logic of capital acquisition is to buy capital assets on terms where they will pay for themselves in a reasonable period of time, AND THAT IS ITS LOGIC, you can persuade the government of your country to adopt - and implement - a national economic policy that recognizes your human right to acquire capital out of its own income.

• Ownership of a reasonable holding of productive capital, legitimately acquired, is the prize of the great Industrial Revolution.
• If the Industrial Revolution, at its outset, and as an ever-ongoing phenomenon, is sustained by the efforts of all citizens of every society, then every human being who lives in a democratic country should insist and work for the establishment of an institutional infrastructure through which he or she, over a reasonable lifetime, can acquire and own a reasonable holding of productive capital.
• After all, when governments help their citizens to become capital workers as well as labor workers, the government is also cooperating with Nature, as it should.
  • It is enabling its citizens to augment their democratically-held labor power with capital power.
  • It will reduce, even eliminate, welfare costs, redistribution and subsidies.
  • It will make its people more productive and make it easy for them to pay taxes.
  • It will raise the quality of their lives.
• Capital is the keystone of the life support system of every post-industrial society.
• Every family and every single individual needs to legitimately acquire and own a reasonable part of that life support system - so that the principles of free market economics will work in the post-industrial age.