This book is one you have to read to learn about the Distributive solution to modern economic problems. My previous readings on this subject consisted merely of attacks on the present system, rather than a exposition of solutions in the modern economy. That being said, I do have a few areas of disagreement:
Medaille states that money is NOT a commodity, and does not have to be based on a commodity. I think this is historically inaccurate. He correctly states that fractional reserve banking enables bankers to create money (in the form of credit) out of nothing, and lend it at interest. Rather than just abolishing this practice as fraudulent, and establishing a free banking system with a commodity backed money, he advocates that the government just print money and lend it without interest for capital projects. As long as the increase in money supply keeps pace with the increase in production, inflation will be minor. This is not a power I would want in government. Even if prices don't rise, malinvestment will still occur due to wrong saving/consumption signals. Better to have private banknotes, with government ensuring value and prosecuting fraud. (eg. One dollar= 1/32 ounce of gold/silver/etc.) This will ensure that prices reflect a real savings/consumption ratio.
He also believes that all (or most) taxation should be a 100% tax on ground rents.
In this he follows Henry George. However, a tax that appropriates all ground rent would drive the capital value of land to zero, and not produce any revenue. The separation of the value of ground rent from the capital improvements would be extremely difficult to calculate. He also ignores the fact that landlords produce a useful function of allocating land to the most efficient user. Keeping land idle produces no revenue!
The main economic problem to be solved is the "just wage" for labor. He states that wage rates have nothing to do with productivity or supply and demand, but rather with bargaining power. For this he recommends unions or "guilds" to represent workers and increase their bargaining power. All you have to do is compare the wages of a laborer in India with one in the U.S. to dispel that notion. A long range comparison will show that increases in the return to labor have kept pace with the increases in productive capacity. The present day stagnant wages are attributable to other factors (inflation, malinvestment, etc.) Does he not think the the increase in supply of labor provided by illegal immigrants has not depressed wages? Do all they need is union representation? I think the answer is self evident.
He also states that an indication of monopoly is the rate of profit. The higher the rate of profit, the more it is evidence of monopoly. His solution is to have progressivly higher taxes on profits,with a 97% tax on high profits.
He even states that this should not have a negative effect on investment since monopolies want to keep supplies low anyway. But this assumes that they are monopolies in the first place.
I don't want to seem too negative, so here are the points I agree with:
He states that the huge conglomerates often achieve their status and power through political influence, subsidies and unpaid externalities. If we stop the subsidies, eliminate the monopoly grants and patent laws, if we charge user fees,then the large corporations will have to break up to smaller units, and a greater share of wealth given to labor. He correctly states that if a corporation grows too large, it will face the same calculation problems of allocating resources that a socialist economy faces. This natural limit to corporations was first described by Austrian economists, and is another reason that monopolies cannot occur naturally without government aid.
His call for the abolition of the Federal Reserve is well taken (but not his call for tranferring its powers to Congress). His recommendation for more co-ops and worker owned industries is commendable, since it all done without State coercion.
However, despite his examples, in co-ops everyone is an equal owner so there is a disincentive to invest more than any one else; this could hamper investment in a competitive market against other corporations.
I really like his proposal of having all taxation collected by local governments which then distributes it up to higher levels of government (State and Federal). Imagine the Federal government having to justify in Constitutional terms its request for funds! This returns us to the way it was in the original Articles of Confederation!
As he says, economic considerations have to be subordinated to moral considerations and institutions should be developed to give a meaningful life to all families. Bishop Sheen once advocated a fund be set up by businesses or local government to bring low wage workers up to a family wage. A moderate social safety net is perfectly compatible with a free market.
I cannot go into all the useful insights presented in this book, from taxation to health care, and proposals for de-monopolizing and freeing the economy. It is written in a readable and non-technical manner that makes it hard to put down. Whether you agree with the author or not, you will be enlightened and give serious consideration and thought to his proposals.
