There is much wisdom in the Principle of Subsidiarity. See, e.g., Thomas C. Behr, Social Justice and Subsidiarity. This is a key principle of the social doctrine of the Catholic Church. Concordian economics offers the opportunity for an automatic application of this principle.
Our Current Economic Policies
This is the context: Modern economic policies do not respect the Principle of Subsidiarity, which states that social and economic issues ought to be decided and implemented by the smallest, lowest, competent local authority, rather than by a central authority. Issues have to be faced where they arise.
Modern economic policies are confined to Monetary Policy and Fiscal Policy. Monetary Policy is implemented by the Federal Reserve System (the Fed, our central bank), which, located in Washington DC and mainly executed in New York City, is as far removed as possible from Main Street and local industrial parks where the economic action mostly occurs. Federal Reserve Banks are scattered in twelve locations throughout the country, but they perform subordinate functions.
Ditto for Fiscal Policy: Decisions to raise taxes and to spend the money are formulated by the Congress of the United States and executed by the Executive Branch; nearly all federal agencies are located in Washington DC, with hints at decentralization whenever Regional Agencies are located elsewhere in the United States. (There are compelling reasons to keep Headquarters of Federal Agencies located in the District of Columbia).
This type of organization varies little the world over, no matter the political ideology to which governments respond.
Minor fiscal decisions are taken at the State and local levels—based on the same organizational principles as those carried out at the national level.
Defects in Current Policies
This is the content of our economic policies today: monetary policies are restricted to lowering or raising interest rates to control inflation as well as to lending to the “primary dealers” (use of the “discount window,” a form of decentralized lending, is limited to “last resort”); fiscal policies are concerned with taxing the people as harshly as possible and “investing” the proceeds (when the situation is observed outside official rhetoric) favoring those who vote our representatives in office, let alone the powers-behind-the-scenes who fund their election campaigns. Whatever is left in the till is given to the poor.
These are policies we implement following the thought of two flawed European economists, Keynes and Hayek.
Concordian Economic Policies
Concordian economic policies, instead, are rooted in the thought processes of four powerful American thinkers: Benjamin Franklin, Henry George, Louis D. Brandeis, and Louis O. Kelso. They never met, but all together they offer a powerful system of economic thought.
Over and above other exemplary offerings, with them, morality does not take second place to efficiency. And notice that the efficiency pursued by modern economists refers solely to financial efficiency. Quite the contrary. The thought of our quadriglia ought to be of extreme interest to people who profess the benefits to be derived from the application of the Principle of Subsidiarity.
Proposed Concordian Economic Policies
Based on Concordian economics, the following proposed policies have been presented in a variety of contexts: see especially here, here, and here
Concordian economics unfolds wholly from the Parable of the Talents, namely by reinserting Hoarding in the economic discourse. The core of Concordian economics is composed of the formulation of four Economic Rights and Responsibilities; as pointed out many times, lately here, Concordian economics reaches its apogee in reaffirming the economic and moral wisdom of adopting the Mosaic debt jubilee, the systematic cancellation of debts every seven years.
The Government, as a representative of all the people, is called to proclaim these rights and responsibilities. Economic rights are universal rights naturally belonging to each inhabitant of the land, citizens as well as foreigners. Citizens and foreigners contribute to the creation of the wealth of nations. Wise Governments will extend to foreigners the benefit of economic rights and responsibilities that are key ingredients of civilized living together in the polis.
Economic rights are natural rights: their exercise is essential to a life of dignity and self-respect. They are universal rights: they belong to each and every human being simply for being alive. They are public (or constitutional) rights: private rights are rights of exclusion; public rights are rights of inclusion.
The Market, the unfettered Market, is called upon to exercise these rights and responsibilities.
The judicial system of the country will see to it that rights and responsibilities are executed fairly by all the inhabitants of the nation.
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NOTE: All discussions concerning the presumed antagonism between Government and Market are canceled in Concordian economics, thus the reality, and indeed the necessity of these two complementary institutions, is respected.
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Four Economic Rights and Responsibilities
As there are four modern factors of production—namely land, labor, financial capital, and physical capital—so there are four economic rights and responsibilities in Concordian economics.
Economic rights are acquired, not through a gift of society, but through the exercise of corresponding economic responsibilities. It is this inextricable connection between rights and responsibilities that assures the ultimate mutual integration of society.
The first economic right is the right of access to land and natural resources.
This right is conferred through the responsibility of paying taxes for the exclusive right of access to land and natural resources.
Even though there are many economists, from John Stuart Mill to eight recent Nobel Laureates, who have advocated for it, the father of this policy is undoubtedly Henry George.
These taxes are wholly justified; the value of our wealth is accrued through the many subtle operations of society: a rock in Arizona is worth a pittance; the same type of rock in New York City is worth gazillions. Why? The value of the NYC rock is produced not only through the love and care expended on it by its owners, but it is also contributed by the Metropolitan Museum, the Guggenheim, New York Philharmonic, the Public Library, the subway system, the New York Stock Exchange.
Land and natural resources exist within the confines of cities and towns; that is the location where economic activities are executed. Cities and towns are the legal entities entitled to collect taxes that are used to pay for the services offered for the benefit of the entire community. The Principe of Subsidiarity applies here to a T.
Tax Land and Natural Resources
In a well-ordered society, the only taxes raised by governments are taxes on land and natural resources. Thus, gradually, very gradually, a civilized society will reduce the taxes on wealth and income to zero: these taxes penalize enterprise and initiative. To achieve this type of organized society many of the services currently offered by the central government will become unnecessary, since the people, through the exercise of their four economic rights and responsibilities will create all the wealth that they need.
The imposition of taxes on land and natural resources will gradually achieve the breakup of the latifundia; the payment of taxes will gradually induce owners of latifundia to reduce the extent of their landholdings. With more land and natural resources available on the market, their prices will gradually decrease. And thus, this action will automatically make it possible for a larger number of people to be able to exercise their right of access to land and natural resources.
Land reform programs, namely programs of land expropriation, have consistently been dismal failures. They will eventually become totally unnecessary. Land Value Taxation (LVT) is the only fair way to proceed. People who want to reserve for themselves the use of a large tract of land will be free to do so; but they will have to compensate the rest of society for their right to exclusivity.
The history of the public treatment of natural resources is even more eventful than that of land taxation. How did oil and mineral extractors ever succeed in getting subsidies for resource exhaustion (depletion allowances) rather than compensating the community for the extraction of the public’s common resources, our natural commonwealth?
The second economic right is the right of access to the fruit of one’s labor.
This right is conferred through the responsibility of executing the tasks called for in the performance of duties involved in participation in the process of the creation of wealth.
Many economists, implicitly or explicitly, object to this policy; many seem to be totally unaware of it. The objective reader will acknowledge its pivotal importance. The father of this policy is Louis O. Kelso, a lawyer. He is the creator of the Employee Stock Ownership Plan (ESOP) through which this second economic right can be naturally implemented.
Individual entrepreneurs are, of course, mostly kings of and on their own location. The Principle of Subsidiarity applies to them to a T. And their numbers are decidedly increasing: one of the positive results of the Covid-19 pandemic is the rediscovery of advantages of independent work at home, and, as in ancient times, living “over the shop.” Another important, little-known statistic: the number of people who work within the legal framework of ESOPs has surpassed the number of people who belong to labor unions.
Corporations are today the dominant factor of production. The second economic right is automatically exercised at a very local level, the level at which labor is performed. If worldwide corporations were wise, they would decentralize their operations and let workers be in as much control as possible of their tasks at the specific locality at which they are working.
Complete decentralization is undoubtedly far into the future. Yet the validity of the Principle of Subsidiarity is still visible within the environment of each corporation. Decisions taken anywhere by multinational corporations are necessarily executed within the premises of each local factory wherever these factories are located in the world.
Concordian Labor Policy
In modern economic theory, there is no explicit, well-detailed labor policy, except for the practical prodding from labor unions and politicians to “raise wages.” This policy is an economic disaster: wages are raised today, and most corporations are compelled to raise prices tomorrow. Inflation raises its ugly head; people on a fixed income—or no income at all—suffer the most. Foreign competition often benefits from the unraveling of the pursuit of always “higher wages.”
Without giving it too much thought, our modern culture—with roots in the thought of Karl Marx v. John Locke—has created an antithetical split between labor unions and corporations. The result has been a bane for all concerned: the corporation has become a capitalist monster; the labor union has become an opponent fomenting socialism. The people at large are all blindly chasing two faulty ideals/ideologies: Capitalism and Socialism/Communism.
Concordian labor policy frees the world from this unnatural antagonism by suggesting that the aim of labor unions ought to be, not higher wages, but a fair distribution of capital ownership. The legal tool to accomplish this aim, in the United States at least, is ready-made, the tool is the Employee Stock Ownership Plan (ESOP).
The day will come when labor unions and politicians will advocate for fair equity distribution of the value of the wealth created by workers and employees. Labor “unrest” will disappear: workers who are part owners of the corporation in which they work tend to work harder and more imaginatively to create more value for everyone. Not the least benefit of this policy is the abatement of inequality.
Labor unions must link their membership dues to the apportionment of equity in the distribution of stock ownership.
The third economic right is the right of access to national credit.
This right is conferred through the responsibility of repaying the loan obtained through access to national credit.
The Fed, like every Central Bank, is the administrator of national credit. As seen earlier, monetary decisions today are taken far away from the local level. Concordian monetary policy suggests that local banks should be the originators and administrators of loans issued by the Fed on behalf of their clients. Let us see how.
Concordian monetary policy suggests that the Fed should issue loans following three basic rules: (I) loans should be issued only to create real wealth; (ii) loans should be issued only to individual entrepreneurs, to corporations with ESOPs, and to local public agencies with taxing power; (iii) loans should be issued at cost.
What I have so far not specified, unless I have had the opportunity to talk about it, is that in Concordian economics local banks have the power to basically originate and administer the loans on behalf of their clients, which they will present to the “discount window” of the Fed to obtain the necessary funds.
Flow of Credit to Main Street
Thus, Concordian policy reverses the flow of credit from Wall Street to Main Street. Wall Street will, of course, continue to exist by accessing the private financial market. The flow of public funds originated within the realm of national credit is directed where it is most needed. Rather than overwhelming the real economy, finance will thus be used to serve the real economy (cf., Laudato Si, # 109).
By obtaining loans at cost, local economies will flourish, and their activities will acquire an immediate competitive edge. The advantage might be such as to render them competitive again in relation to foreign enterprises, which generally benefit from lower local labor costs.
And speaking of labor costs, if unions favor the policy of equity distribution mentioned above, the manufacturing power of the United States will certainly be restored to its former glory.
Environmentalists fear not. Financially secure people will reduce waste and degradation of our natural resources. Production for no other purpose than to repay debts will come to a screeching halt.
In a manifestation of moral fortitude, the Fed has given a nod of approval to this policy. In a personal communication to this writer, the Fed has suggested that I should present this proposal to my “state and federal representatives,” which I have haltingly done.
Instauration of Concordian Monetary Policy
Concordian Monetary Policy ought to be instaurated any time soon; it must be instaurated the day after a major crash in the Stock Market if we want to minimize the devastation that generally follows such crashes.
This policy has deep roots in Catholic sources: It was Aquinas and Oresme who proclaimed that the Sovereign ought to create money for the benefit of the people at large. This policy has also deep roots in the American democratic tradition. Initiated by the American colonists, who were the creators of paper money in the West, this policy is the fulfillment of the hopes and efforts of our beloved Benjamin Franklin. It is he who gave the Government, rather than the bankers, the power to create and distribute public money.
Unfortunately, Alexander Hamilton led the country to a surreptitious counter-revolution when he created the first Bank of the United States on the model of the Bank of England.
It is high time, as William Jennings Bryan advocated long ago, that we restore “the money of the Constitution.” The full sentence is pregnant with more meaning: “…when we have restored the money of the Constitution, all other necessary reforms will be possible, and… until that is done there is no reform that can be accomplished.”
How true is this realization still today is an issue that is conveniently placed under wrap.
The fourth economic right is the right of access to the fruits of one’s physical capital.
This right is acquired through respect for the fruits of other people’s capital.
Louis D. Brandeis never explicitly advocated it; implicitly, however, the thrust of his thought is such that this policy can be properly called the Brandeis Rule. Brandeis, as well as many participants in the Progressive Movement, advocated a retrospective approach: break up the trusts when their operations become unbearable.
The Brandeis Rule advocates a prospective prohibition of the trustification process.
The Brandeis Rule holds that corporations can freely grow as large as they can through internal growth; corporations are prohibited to grow by purchasing other corporations.
The current form of industrialization creates havoc in the social fabric of the nation. It is akin to industrial murder.
Application of the Brandeis Rule
The immediate effect of the application of the Brandeis Rule will be a freeze in the value of assets of the largest corporations: Since they cannot be bought or sold, their value will stabilize around their true worth. This effect will have deflationary tendencies. Most of all, those financial—and human—resources that today are devoted to buying and selling other corporations will be directed toward the internal needs of corporations.
The application of the Brandeis Rule will do its part in reversing the center of gravity of the decision-making process from a centralizing ardor to a decentralized local passion.
Do consider the Concordian ensemble: higher taxes on land and natural resources, but lower income taxes and corporate income taxes; market wages, not high wages; loans at cost, rather than loans at interest; concentration of human and financial resources on the internal needs of corporations,
Is this a dream? Is this an impossible dream? Or is it a near eternal quest to create the polis, a social organization in which, as Martin Luther King, Jr. so magisterially put it, men and women “will not be judged by the color of their skin but by the content of their character.”
Concordian Debt Policy as Mosaic Debt Jubilee
Should we cancel student debt? No. We should cancel all debt.
Most kings and emperors worthy of their robes declared a debt jubilee upon elevation to the throne. It seems that the Israelites practiced a debt jubilee every seven years. This policy hides all sorts of wisdom and suffers only from an apparent loss in the value of money.
The value of money is that it can be exchanged for real goods and services. When such correspondence does not exist, what one holds is a hot succession of zeros. These zeros kill the enterprise and initiative of way too many people.
If debts are not repaid within seven years (this is true especially for business loans), it means that the incurring—and the granting—of a loan was a mistake. Perpetuating a mistake does not do any good to anyone. Implied here is a nuance: loan makers must share a responsibility in the execution of loans. (Too many loans are granted for the satisfaction of immediate greed.)
There is another not-too-subtle distinction in a debt jubilee. Encourage capital loans; discourage consumer loans at all costs. Capital loans have the potential of creating economic freedom for debtors and creditors; consumer loans definitely enslave the borrower. They also foster an inappropriate manifestation of a desire for immediate gratification.
Conclusion
The Principle of Subsidiarity has rock-solid truth value in it: the wisdom in this principle can be synthesized in the expression “there are no rights without responsibilities.”
Yet, it is not applied because it does not fit in the prevailing paradigm of modern economic thought in which there are no rights—only entitlements. Does not this disjunction contain the seed of so much discord afflicting our public life these days?
Rather than letting it languish in academic books, we should move mari e Monti (seas and mountains) to gather the fruits of the Principle of Subsidiarity.
Concordian economics has the power to let us gather those fruits.
Acknowledgments
I wish to acknowledge Dr. Luis T. Gutierrez, the editor of Mother Pelican, a Journal of Solidarity and Sustainability, who proposed the subject matter for this presentation.
