Give us our cash

What are the conditions today? There is a pile of cash sitting idle with our large financial and industrial corporations. We are not creating nearly enough jobs. And with people not being able to pay their mortgages, our houses are losing value. 

Do we have a workable solution to our current economic crisis? I don’t think so. It seems that all proposals on the table suffer from such evident weaknesses that they are not being implemented and, likely, they are not going to be implemented any time soon.

Will the American people—and people in the rest of the world, for that matter—have the inner fortitude to wait patiently until our political and economic leadership finds an acceptable solution to the current world wide crisis? I don’t think so either.

Caught between these two realities, I would like to offer a two-step just and sustainable solution that will work at high speed—at no cost to taxpayers, without further loss in the value of our wealth, with minimal risk to fan the flames of inflation, and no government intervention.

Here is the bottleneck: Corporations have gummed up the system with their accumulation of cash—piles of cash which they cannot use, because there is not enough purchasing power in the system to recover costs of production and make a profit to boot. There you have a vicious loop: no jobs, no income, and no possibility to invest that cash.

Absence of sufficient purchasing power in the economic system is a cause of the bottleneck; lack of imagination on how and where to invest the abundance of cash in corporate coffers is another. The conglomeration of wealth into few large corporations compounds the problem; there is room for far too few minds at the top and these few minds cannot possibly have the range of expertise necessary to properly employ the surplus cash. What is lacking is a variety and diversity of opinion on how to invest most hoarded cash.

Here is the solution to this variety of problems. Step one: Lets us as a community determine that corporations will have six months to distribute a large percentage of their surplus cash—not indiscriminately, not in accordance with any ideology, but in accordance with rules of law, in accordance with existing lawful processes.

Lets us determine that corporations will have six months to distribute their surplus cash to their stockholders and bondholders: the rightful owners of that wealth.

In the United States, especially, the ownership of corporations is broadly based. If the cash accumulated in the coffers of a few large corporations is distributed among owners of all forms of investment and retirement funds holding those shares and those bonds, most cash will reach the people who know how to spend their money wisely.

Then corporations can make new investments because they can depend on consumers spending those distributions to satisfy pent-up demand.

But, clearly, since wealth is concentrated into a few hands, many stockholders and bondholders will receive so much cash that they will not know how to spend it properly. After all, there are just so many such conspicuous goods as Gucci and Pucci bags that one can show off, and spending sprees cannot last forever. Real people stop before they drop. The bottleneck will reappear downward.

For them, a second step of the proposal is ready to spring into action: this step involves investments into the local economy—either through personal connections or through the creation of Local Interdependence Funds.

Personal investments are an ancient practice. The constitution of Local Interdependence Funds is explained in some detail in To My Polis. Under the aegis of an all volunteer board composed of a banker, an investment banker, a lawyer, a business development expert, and an architect, all advised by an accountant, I presented the idea of the Gloucester Interdependence Fund to all the local bankers, first individually and then in a group meeting that lasted several hours. The bankers in Gloucester examined the mechanism of these funds and found nothing objectionable in it. But they are not going to implement the idea, just because a few people suggest it should be done. They need full community support from business, civic, religious, literary, artistic, and political leadership. Perhaps now is the time to give our local bankers all the community support they need.

Each community should consider the establishment of a local Interdependence Fund. These funds can even be established without waiting for the large corporations to disburse their excess cash.

Investors in such funds keep ownership and control of their investments. For proper administration of their wealth they can rely on the expertise and care of local banks where the cash is deposited. For proper utilization of their wealth—and further, gradual, orderly increase of their wealth—they can rely on lending only to local business men and women, artists, and inventors whom they know: people who are full of ideas and short of cash.

A useful postscript. If you need the safety blanket of theory to stiffen your determination, you cannot do much better than ponder these passages from Quadragesimo Anno, ## 105-106:

“…it is obvious that not only is wealth concentrated in our times [1931] but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure.

This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.”

Not too surprisingly, liberated from the clutches of ideologues of the right as well as ideologues of the left, Pope Pius XI can be recognized as an eminent sociologist and economist.

For confirmation, read Adam Smith, The Wealth of Nations, B. III, Ch. 4: "All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind".

© 2011 Carmine Gorga, a former Fulbright Scholar, is president of The Somist Institute, a research organization in Gloucester, Mass. Through The Economic Process, To My Polis, and numerous other publications in economic theory and policy, he has transformed economics from a linear to a relational discipline. Dr. Gorga blogs at  http://me-a-new-economic-atlas-and-you/