The Real Antidote to Inflation

BY ELLEN BROWN

 DECEMBER 28, 2021

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The Federal Reserve is caught between a rock and a hard place. Inflation grew by 6.8% in November, the fastest in 40 years, a trend the Fed has now acknowledged is not “transitory.” The conventional theory is that inflation is due to too much money chasing too few goods, so the Fed is under heavy pressure to “tighten” or shrink the money supply. Its conventional tools for this purpose are to reduce asset purchases and raise interest rates. But corporate debt has risen by $1.3 trillion just since early 2020; so if the Fed raises rates, a massive wave of defaults is likely to result. According to financial advisor Graham Summers in an article titled “The Fed Is About to Start Playing with Matches Next to a $30 Trillion Debt Bomb,” the stock market could collapse by as much as 50%.

Even more at risk are the small and medium-sized enterprises (SMEs) that are the backbone of the productive economy, companies that need bank credit to survive. In 2020, 200,000 more U.S. businesses closed than in normal pre-pandemic years. SMEs targeted as “nonessential” were restricted in their ability to conduct business, while the large international corporations remained open. Raising interest rates on the surviving SMEs could be the final blow.

Cut Demand or Increase Supply?

The argument for raising interest rates is that it will reduce the demand for bank credit, which is now acknowledged to be the source of most of the new money in the money supply. In 2014, the Bank of England wrote in its first-quarter report that 97% of the UK money supply was created by banks when they made loans. In the U.S. the figure is not quite so high, but well over 90% of the U.S. money supply is also created by bank lending.

Left unanswered is whether raising interest rates will lower prices in an economy beset with supply problems. Oil and natural gas shortages, food shortages, and supply chain disruptions are major contributors to today’s high prices. Raising interest rates will hurt, not help, the producers and distributors of those products, by raising their borrowing costs. As observed by Canadian senator and economist Diane Bellemare:

Raising interest rates may cool off demand, but today’s high prices are tightly tied to supply issues – goods not coming through to manufacturers or retailers in a predictable way, and global markets not able to react quickly enough to changing tastes of consumers.

… A singular focus on inflation could lead to a ratcheting up of interest rates at a time when Canada [and the U.S.] should be increasing its ability to produce more goods, and supplying retailers and consumers alike with what they need.

Rather than a reduction in demand, we need more supply available locally; and to fund its production, credit-money needs to increase. When supply and demand increase together, prices remain stable, while GDP and incomes go up.

So argues UK Prof. Richard Werner, a German-born economist who invented the term “quantitative easing” (QE) when he was working in Japan in the 1990s. Japanese banks had pumped up demand for housing, driving up prices to unsustainable levels, until the market inevitably crashed and took the economy down with it. The QE that Werner prescribed was not the asset-inflating money creation we see today. Rather, he recommended increasing GDP by driving money into the real, productive economy; and that is what he recommends for today’s economic crisis.

How to Fund Local Production

SMES make up around 97-99% of the private sector of almost every economy globally. Despite massive losses from the pandemic lockdowns, in the U.S. there were still 30.7 million small businesses reported in December 2020. Small companies account for 64 percent of new U.S. jobs; yet in most U.S. manufacturing sectors, productivity growth is substantially below the standards set by Germany, and many U.S. SMEs are not productive enough to compete with the cost advantages of Chinese and other low-wage competitors. Why?

Werner observes that Germany exports nearly as much as China does, although the German population is a mere 6% of China’s. The Chinese also have low-wage advantages. How can German small firms compete when U.S. firms cannot? Werner credits Germany’s 1,500 not-for-profit/community banks, the largest number in the world. Seventy percent of German deposits are with these local banks – 26.6% with cooperative banks and 42.9% with publicly-owned savings banks called Sparkassen, which are legally limited to lending in their own communities. Together these local banks do over 90% of SME lending. Germany has more than ten times as many banks engaged in SME lending as the UK, and German SMEs are world market leaders in many industries.

Small banks lend to small companies, while large banks lend to large companies – and to large-scale financial speculators. German community banks were not affected by the 2008 crisis, says Werner, so they were able to increase SME lending after 2008; and as a result, there was no German recession and no increase in unemployment.

China’s success, too, Werner attributes to its large network of community banks. Under Mao, China had a single centralized national banking system. In 1982, guided by Deng Xiaoping, China reformed its money system and introduced thousands of commercial banks, including hundreds of cooperative banks. Decades of double-digit growth followed. “Window guidance” was also used: harmful bank credit creation for asset transactions and consumption were suppressed, while productive credit was encouraged.

Werner’s recommendations for today’s economic conditions are to reform the money system by: banning bank credit for transactions that don’t contribute to GDP; creating a network of many small community banks lending for productive purposes, returning all gains to the community; and making bank behavior transparent, accountable and sustainable. He is chairman of the board of Hampshire Community Bank, launched just this year, which lays out the model. It includes no bonus payments to staff, only ordinary modest salaries; credit advanced mainly to SMEs and for housing construction (buy-to-build mortgages); and ownership by a local charity for the benefit of the people in the county, with half the votes in the hands of the local authorities and universities that are its investors.

Public Banking in the United States: North Dakota’s Success

That model – cut out the middlemen and operationalize community banks to create credit for local production – also underlies the success of the century-old Bank of North Dakota (BND), the only state-owned U.S. bank in existence. North Dakota is also the only state to have escaped the 2008-09 recession, having a state budget that never dropped into the red. The state has nearly six times as many local banks per capita as the country overall. The BND does not compete with these community banks but partners with them, a very productive arrangement for all parties.

In 2014, the Wall Street Journal published an article stating that the BND was more profitable even than JPMorgan Chase and Goldman Sachs. The author credited North Dakota’s oil boom, but the boom turned into a bust that very year, yet the BND continued to report record profits. It has averaged a 20% return on equity over the last 19 years, far exceeding the ROI of JPMorgan Chase and Wells Fargo, where state governments typically place their deposits.  According to its 2020 annual report, in 2019 the BND had completed 16 years of record-breaking profits.

Its 2020 ROI of 15%, while not quite as good, was still stellar considering the economic crisis hitting the nation that year. The BND had the largest percentage of Payroll Protection Plan recipients per capita of any state; it tripled its loans for the commercial and agricultural sectors in 2020; and it lowered its fixed interest rate on student loans by 1%, saving borrowers an average of $6,400 over the life of the loan. The BND closed 2020 with $7.7 billion in assets.

Why is the BND so profitable, then, if not due to oil? Its business model allows it to have much lower costs than other banks. It has no private investors skimming off short-term profits, no high paid executives, no need to advertise, and, until recently, it had only one branch, now expanded to two. By law, all of the state’s revenues are deposited in the BND. It partners with local banks on loans, helping with capitalization, liquidity and regulations. The BND’s savings are returned to the state or passed on to local borrowers in the form of lower interest rates.

What the Fed Could Do Now

The BND and Sparkassen banks are great public banking models, but implementing them takes time, and the Fed is under pressure to deal with an inflation crisis right now. Prof. Werner worries about centralization and thinks we don’t need central banks at all; but as long as we have them, we might as well put them to use serving the Main Street economy.

In September 2020, Saqib Bhatti and Brittany Alston of the Action Center on Race and the Economy proposed a plan for stimulating local production that could be implemented by the Fed immediately. It could make interest-free loans directly to state and local governments for productive purposes. To better fit with prevailing Fed policies, perhaps it could make 0.25% loans, as it now makes to private banks through its discount window and to repo market investors through its standing repo facility.

They noted that interest payments on municipal debt transfer more than $160 billion every year from taxpayers to wealthy investors and banks on Wall Street. These funds could be put to more productive public use if the Federal Reserve were to make long-term zero-cost loans available to all U.S. state and local governments and government agencies. With that money, they could refinance old debts and take out loans for new long-term capital infrastructure projects, while canceling nearly all of their existing interest payments. Interest and fees typically make up 50% of the cost of infrastructure. Dropping the interest rate nearly to zero could stimulate a boom in those desperately needed projects. The American Society of Civil Engineers (ASCE) estimates in its 2021 report that $6.1 trillion is needed just to repair our nation’s infrastructure.

As for the risk that state and local governments might not pay back their debts, Bhatti and Alston contend that it is virtually nonexistent. States are not legally allowed to default, and about half the states do not permit their cities to file for bankruptcy. The authors write:

According to Moody’s Investors Service, the cumulative ten-year default rate for municipal bonds between 1970 and 2019 was just 0.16%, compared with 10.17% for corporate bonds, meaning corporate bonds were a whopping 63 times more likely to default. …[M]unicipal bonds as a whole were safer investment than the safest 3% of corporate bonds. … US municipal bonds are extremely safe investments, and the interest rates that most state and local government borrowers are forced to pay are unjustifiably high.

… The major rating agencies have a long history of using credit ratings to push an austerity agenda and demand cuts to public services …. Moreover, they discriminate against municipal borrowers by giving them lower credit ratings than corporations that are significantly more likely to default.

… [T]he same banks that are major bond underwriters also have a record of collusion and bid-rigging in the municipal bond market. … Several banks, including JPMorgan Chase and Citigroup, have pleaded guilty to criminal charges and paid billions in fines to financial regulators.

… There is no reason for banks and bondholders to be able to profit from this basic piece of infrastructure if the Federal Reserve could do it for free. [Citations omitted.]

To ensure repayment and discourage overborrowing, say Bhatti and Alston, the Fed could adopt regulations such as requiring any borrower that misses a payment to levy an automatic tax on residents above a certain income threshold. Borrowing limits could also be put in place. Politicization of loans could be avoided by making loans available indiscriminately to all public borrowers within their borrowing limits. Another possibility might be to mediate the loans through a National Infrastructure Bank, as proposed in HR 3339.

All of this could be done without new legislation. The Federal Reserve has statutory authority under the Federal Reserve Act to lend to municipal borrowers for a period of up to six months. It could just agree to roll over these loans for a fixed period of years. Bhatti and Alston observe that under the 2020 CARES Act, the Fed was given permission to make up to $500 billion in indefinite, long-term loans to municipal borrowers, but it failed to act on that authority to the extent allowed. Loans were limited to no more than three years, and the interest rate charged was so high that most municipal borrowers could get lower rates on the open municipal bond market.

Private corporations, which the authors show are 63 times more likely to default, were offered much more generous terms on corporate debt; and 330 corporations took the offer, versus only two municipal takers through the Municipal Liquidity Facility. The federal government also made $10.4 trillion in bailouts and backstops available to the financial sector after the 2008 financial crisis, a sum that is 2.5 times the size of the entire U.S. municipal bond market.

Stoking the Fire with Credit for Local Production

Playing with matches that could trigger a $30 trillion debt bomb is obviously something the Fed should try to avoid. Prof. Werner would probably argue that its policy mistake, like Japan’s in the 1980s, has been to inject credit so that it has gone into speculative assets, inflating asset prices. The Fed’s liquidity fire hose needs to be directed at local production. This can be done through local community or public banks, or by making near-zero interest loans to state and local governments, perhaps mediated through a National Infrastructure Bank.

This article was first posted on ScheerPost.

Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com.

Capitalists are Dispensable, Laborers Are Not

BY M. SHAHID ALAM

 DECEMBER 28, 2021Facebook

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Photograph Source: Mark Dixon – CC BY 2.0

“If you set to work to believe everything,
you will tire out the believing-muscles of your mind,
and then you’ll be so weak you won’t be able
to believe the simplest true things.”

– Lewis Carroll

Capitalists—qua owners of capital—are dispensable, but laborers are not.

This thesis flows from a neglected asymmetry between capitalists and laborers. The capitalist does not stand in the same relation to capital and the services of capital as a laborer does with respect to his laboring capacities and the services of these capacities. This distinction goes unacknowledged by neoclassical economists as well as economists of other persuasions. If this is because they have concluded that this is of no consequence, we offer some arguments to the contrary.

There is irony in this thesis even as capitalism threatens to render laborers ‘useless,’ that is, replace them with intelligent machines faster than it creates new jobs. But this is not the place to address this irony.

Why are capitalists dispensable?

Consider a series of relations moving from a capitalist to his capital, and from capital to the services of capital. Next examine another series moving from a laborer to his laboring capacities, and from these capacities to the diverse services of these capacities, also known as the services of labor. There exist important differences between the two series.

There exists no integral—or, if you prefer, visceral—connection between the capitalist and his capital or between the capitalist and the services of capital. Capital and the services of capital are wholly external to the capitalist qua owner of capital; their relationship to the capitalist is merely legal so that a capitalist can be physically separated from his capital and the services of his capital. If the capitalist prefers leisure to work or lacks the requisite managerial skills, he can delegate the task of running his enterprise to hired managers. Once the capitalist appoints a manager to run his enterprise, he could be soaking the sun inside one of the many craters on the moon while his enterprise continues to produce goods or services somewhere in Agawam, Massachusetts. All this notwithstanding, at the end of every year or every quarter, this capitalist will receive the profits or carry the losses of his enterprise. This is his return for risking his funds to organize production.

Now consider an economy whose capital has been transferred to the workers in each enterprise. The workers in each enterprise form a worker-cooperative; they collectively own its capital, vote to elect a workers’ council who then appoint managers, or elect the managers directly. In addition, each WC is free to borrow funds from deposit banks or tax-funded investment banks. Each WC is also free to sell some fraction of its fixed capital should this not be needed; the proceeds from this sale may be used to pay off loans, deposited in a bank as a reserve fund against rainy days, or allocated to research and development.

Each worker cooperative may choose its modus vivendi and its goals. At first, therefore, a variety of worker cooperatives may emerge, with different goals and structures; they may be more or less egalitarian; some may work primarily with fixed wages, others with a combination of fixed wages and shares in the coop’s residual. Some may give greater weight to steady employment, others to higher wages. It is difficult to say, which types of cooperatives may emerge as winners. Collectively, the cooperatives may set some limits to the goals, and the governance and the reward structures of the coops to ensure the viability of the system as a whole.

In one stroke then, we have created a market economy without any capitalists as the term is understood in a capitalist economy. Production in this economy is organized by worker cooperatives, whose policies are formulated by a management periodically elected by workers. The workers in each enterprise are free to set the rules under which they work; they are also free to leave one WC and join another. However, the capital of any enterprise is not traded, nor does it move when any worker leaves the enterprise.

In a splendid piece of circular reasoning, neoclassical economists justify private ownership of capital on the ground that it is the capitalist who organizes production. This is a non sequitur. The capitalist organizes production precisely because he is a capitalist: he commands his own or borrowed funds that allow him to do so. In an economy consisting of worker cooperatives, teams of workers could organize production with funds borrowed from deposit banks or tax-funded investment banks.

It may be argued that the co-ops cannot match the performance of corporations because they have no skin in the game. This is not true. Unlike workers who receive fixed wages, the members of WCs may receive all or some fraction of their income that is tied to their co-op’s residual. Since they share in the coop’s decision-making, co-op members are more likely than wage-workers to identify with their enterprise. In themselves, these factors may help to reduce shirking. In addition, shirkers in co-ops are likely to come under moral censure from non-shirkers. If free-riding is seen as a problem, the WCs can empower the management to monitor the performance of members and work out rules for dismissing habitual shirkers. Collectively, co-ops may discourage shirking by discounting the earnings of new members who have a record of shirking. Shirkers may also be given the chance to expunge their record by improving their performance.

Since the capitalist is physically separable from his capital, this creates the possibility of separating ownership of capital in an enterprise from control over it. In medieval times, we observe trade partnerships in the Middle East—known as qirad in Arabic—where some partners advanced capital to traders who managed the task of conducting the trade. In 1932, Adolph Berle and Gardiner Means showed that ownership and control of most large-scale enterprises in the United States had ceased to reside in the same hands.

In activities without significant economies of scale and high costs of supervision, the capitalist may lend and/or rent his capital to workers and let them organize production. In agriculture, we find landlords who rent their lands to peasants instead of hiring wage-workers to organize production. During the late eighteenth and nineteenth centuries, capitalists in Britain set up textile factories with work benches that workers could rent to produce yarn and cloth on their own account. It is also common for laborers lacking capital to rent cars, trucks and rickshaws to produce transport services. Others rent space in commercial buildings to organize retail businesses.

A laborer cannot be physically separated from his working capacities or the services of his working capacities.

A laborer’s working capacities include his body, the metabolism that converts food into energy, his cognitive powers, memory, will, emotions, skills, intuition, and his powers of reasoning, sight, speech, hearing, taste and touch. The execution of any task by a worker in real time—whether this entails digging a trench, a sitar recital, performing surgery, crafting a violin, or time spent solving a yet unsolved mathematical conundrum—is the joint product of various manifestations or services of his working capacities.

Under a wage-contract, however, a laborer may sell the services of his working capacities to an employer. In addition, a self-employed person with access to some capital may employ his working capacities to produce services (such as haircuts) that he sells directly to buyers. Alternatively, as a carpenter, he may employ his working capacities to saw, bend, carve, plane, sand, screw together, and polish timber into chairs, and then sell the chairs for a profit. In both cases, the laborer, will likely receive the market wage for his labor and a similar return on the capital he employs in his enterprise.

Some exceptions to the inseparability of a laborer from his laboring capacities may also be noted. If medical technology permits, he may sell or donate his organs or tissues for transplantation to another person. However, a person is unlikely to consent to such transplantations, except when this promises to save the life of a loved one. Of course, without the living person’s consent, or after he dies or is killed, the possibilities become endless.

The first asymmetry we have just described leads to another. 

The separability of the capitalist from his capital nudges us to explore egalitarian re-arrangements of the ownership of capital. Should such rearrangements occur, the capitalists will only lose their claim to the surplus of capitalist enterprises, but they will retain all their rights as citizens and as members of WCs in the new economy. Should they also possess some valuable skills, the WCs will recognize and reward these skills without any prejudice arising from their past history as capitalists.

On the other hand, a laborer cannot be separated from his laboring capacities without also losing his freedom. The capitalist can take ownership of the laboring capacities of legally free laborers only after he takes ownership of their persons for some part of a day, that is, by turning them into wage-slaves.

Importantly, the absence of any integral or visceral connection between the capitalist and his capital points to the potential for reorganizing the ownership of capital on an egalitarian basis. It would be disingenuous to think that the capitalists themselves are not aware of this potential for egalitarian rearrangements of the ownership of capital. In addition, we may surmise that the capitalists know that the workers too—perhaps, with help from their protagonists in the intellectual classes—are aware of this vulnerability.

Given all of the above, we may surmise that capitalists have always been at work—no doubt with help from self-serving economists—to obfuscate this vulnerability and, simultaneously, to harness the coercive powers of the state to protect their pivotal position in the capitalist system. Since the actual use of coercion is costly, the capitalists employ all the forces at their command to convince the workers of the superiority of an economic system based on the private ownership of the means of production. However, should the workers start questioning this ‘natural order,’ the capitalists are prepared to call on the machinery of the state—especially the courts, police and prisons—to knock the workers until they back the capitalist narrative.

Which of the two classes—capitalists or workers—is likely to organize production in a capitalist economy? 

In the 1950s, after nearly a century of mathematical ‘modling,’ neoclassical economists concluded that they had worked out the contours of an imaginary economy that would serve as the ideological fortress of capitalism. Markets in this economy instantaneously reach an equilibrium that is unique, stable and efficient in the sense that no person can be made better off without making at least one person worse off. Capital and labor in this economy receive their just deserts: that is to say, there is no exploitation of labor. In the words of Paul Samuelson, in this economy “it really did not matter who hires whom; so have labor hire ‘capital.’”

The message of the neoclassicals to the capitalists is: Don’t let your hard work as bosses give you a bad conscience. It gives you no advantage. The message to the workers is: Why bother with organizing production; let the capitalists worry about this. Enjoy your hassle-free life as workers; you have nothing to gain from losing your chains. These charming results hold only in perfectly competitive markets in which capitalists can costlessly write and enforce complete employment contracts.

In the real world, however, production is nearly always organized by capitalist bosses. Hurling what he thinks is a challenge to Karl Marx,  David Landes asks “if [capitalist] bosses make (cream off) so much money, why shouldn’t boss-free enterprises (cooperatives, collectives, small self-employed workers, and the like) be able to outdo those capitalistic units that pay so heavy a toll to owners and managers?” Landes imagines that he is setting up a test of the feasibility of workers organizing production. He is challenging boss-free enterprises to organize production in capitalist economies under property rights, institutions and rules established by capitalists. Now, since worker co-ops do not—with rare exceptions—organize production in capitalist economies, this supposedly ‘proves’ that they cannot compete with capitalists in organizing production.

Landes forgets that workers cannot organize production because they have been stripped of the means of production. Since they cannot offer any collateral, they also cannot borrow money or rent capital. Moreover, financing the establishment of WCs is not only a financial issue. The economic and political power of capitalists is built around their class monopoly over production. Why would they dilute this class monopoly by lending capital to workers? It is unlikely that capitalist guilt over exploitation of workers ever reaches the point at which they become willing to commit hara-kiri.

Is the separation of capitalists from capital unjust?

Can any economic system be considered just that has a tendency to place—and often ends up placing—the means of production in the hands of a tiny minority of capitalists, thereby endowing them with the power to organize production not in the interests of the workers or society but exclusively in the interests of the capitalists. Depending on conditions in the labor market, and driven by the profit imperative, the capitalist may hire and fire workers at will. In addition, he may demand that his hired hands put in long hours of work, six days a week, quicken their pace of work to keep up with the machines, and take no breaks in the workplace, even if they have to piss in a bottle or wear diapers.

In a capitalist economy, moreover, workers are disposable, unless they have acquired skills specific to the enterprise in which they work; they may be laid off or fired whenever they are not needed. Can an economic system be just that nearly always fails to provide some workers with employment, and during a depression may fail to provide employment to as much as a third of the workers; when it does provide employment, many of these jobs may not offer the workers a living wage. Can an economic system be humane whose commitment to profit-making demands that workers be fired when they fall sick or are injured even when the sickness and injury are caused by hazards of the work and the workplace? It is ironic that while wage-workers in capitalist economies are legally free and wage-work is considered to be superior to slavery, the capitalists do not have any intrinsic interest in the livelihood and health of their workers that slave-owners have in their slaves and their families.

Similarly, while wage-workers are legally free, they lose their freedom the moment they enter the workplace. The neoclassical economist will predictably protest that a wage-worker remains free even at work since he is free to leave his present job whenever he wishes; if he does not quit that is because he chooses to stay. Sorry: this is a flawed inference. The neoclassical economist is always liberal in making assumptions; when he needs a can opener he just assumes that he has one. Hence, neoclassical economics assumes that workers face no costs in moving to another job that he prefers over his current job.

However, the ability to switch jobs at will does not overcome the lack of freedom at the workplace. A worker cannot escape the lack of freedom at the workplace because this is an unavoidable condition of capitalist employment, unless the nature of a job makes monitoring of work very costly. The lack of freedom at work cannot be blamed on technology; the capitalists have been choosing technology, layout of factories and offices, and work organization that truncate worker autonomy. Bosses can monitor their employees’ pace of work, even when they work remotely.

Conservatives and liberals are likely to view with alarm any talk about the rearrangement of capitalist property rights in the means of production.

Although such alarm is to be expected from the historical beneficiaries of capital accumulation over the last half a millennium, this shows societal amnesia about the horrendous crimes against humanity that attended, and still attend, the expropriation of great masses of humans—men, women, children and the unborn—to finance and support the creation of capitalists and capitalist power in Western Europe and North America. Karl Marx applied the moniker of ‘primitive accumulation’ to the “historical process of divorcing the producer from the means of production.”

The capitalist organization of British agriculture, which began in the late fifteenth century, was accomplished over the next three centuries through successive expropriations of the peasantry either by force or through laws passed by the largest landowners—formerly feudal lords—in the British parliament. The free peasantry that had emerged in England by the late fourteenth century earned a living from cultivating strips of arable land, but they also depended crucially on access to commons for firewood, pasturing their cattle, gathering berries and mushrooms, and catching game and fish. Once the growth of woolen manufactures in Flanders raised the price of wool, English landowners began to privatize the commons, either by force or passing enclosure acts that denied peasants access to the commons, and converted them into sheep pastures; this forced some peasants to seek wage-work in agriculture, while others abandoned their lands to seek wage-work in the towns. In addition, the large landowners also began to enforce gaming laws to ride roughshod over the farms of peasants resulting in losses to their crops.

Next consider a historical rearrangement of property rights during the nineteenth century that is more germane to the subject of this essay. I am referring to the large-scale separation—in the Americas during the nineteenth century—of a very important class of capitalists from their capital invested in slaves. In August 1791, the black slaves in Saint-Domingue—a French colony that was a source of immense profits to France—began a successful rebellion against slave-owning capitalists—who after defeating two massive invasions ordered by Napoleon Bonaparte in 1801 and 1802, declared the establishment in 1804 of the Republic of Haiti ruled by former black slaves. Do we object to this transfer of property rights in slaves from plantations owners to the slaves themselves?

In the nineteenth century, we encounter several more examples of the separation of capitalists from their capital invested in slaves. In 1833, Britain transferred the ownership rights of capitalists in humans to the humans themselves in nearly all its colonial possessions. Some of the northern states in the USA, following the War of Independence in 1776, began passing laws that effected similar transfers of ownership rights in slaves. In 1861, in the midst of the American Civil War, slavery was also abolished in the Southern States. Brazil, perhaps the largest slave-based economy in history, abolished slavery in 1888. In general, where slavery was abolished under law, the cash compensation was less than the market value of the slaves.

The principal results of this essay are easily summarized.

The capitalist is physically separable from the capital that he owns, but the laborer cannot be parted from his laboring capacities.

The first part of the previous statement establishes the feasibility of separating the capitalist from his capital. Indeed, the capitalist (qua capitalist) is a rentier since he does not contribute the services of any of his present working capacities to the enterprise in which he owns capital. The capitalist’s claim to profits is rooted in a legal relationship, not an economic relationship.

Au contraire, the services of a laborer are inseparable from his person. This means that in order to maximize his profits, the capitalist who hires labor must gain control over the laborer’s person and his working capacities in the workplace and—if necessary and feasible—off the workplace. In other words, the capitalist logic demands that the laborer be stripped of his autonomy once he enters the workplace. Although the worker is free in theory to choose his employer, this freedom does not restore the autonomy that he enjoyed in his work and workplace as a self-employed peasant, artisan, peddler or shopkeeper.

A clear-eyed focus on the asymmetry in the two binaries—the separability of the capitalist from capital and inseparability of the laborer from his working capacities—suggests significant gains that are likely to flow from an alternative organization of production that transfers ownership and control over capital from capitalist enterprises to worker cooperatives.

A detailed discussion of these gains is a subject for another essay. However, broadly speaking, these gains are likely to flow from two forms of democratization that will attend the transfer of capital from the capitalists to the workers. First, there is the political democratization that will flow from the transformation of the capitalist enterprises to worker cooperatives. A political system that grows out of the interests and actions of workers and worker co-ops is unlikely to be hijacked by sectional interests.

Secondly, there is the democratization in the workplace. A variety of benefits are likely to flow to workers from the establishment of co-ops. These may include sharing by members in policy-making, creation of a culture of egalitarianism, improvements in working conditions, equal access of all members and their families to education, health and social services, less hierarchy in the organization of work, sharing and phasing out of tedious work, and greater income inequality. An economy consisting of worker co-ops will nurture cooperation, in the workplace and outside it. Once profits are dethroned as the only or chief objective driving production and technological change, the economy will have a chance to redirect its focus from endless capital accumulation towards a thousand improvements in the quality of life for everyone.

M. SHAHID ALAM is professor of economics at Northeastern University. This is an excerpt from his forthcoming book, Israeli Exceptionalism: The Destabilizing Logic of Zionism (Macmillan, November 2009). Contact me at alqalam02760@yahoo.com.

A Socialist Defense of Vaccine Mandates

BY NICK PEMBERTON

 DECEMBER 28, 2021

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I was slightly surprised to see that Richard Wolff opposed vaccine mandates. C. Derick Varn thought Wolff wanted to support the position of the working class and this was why he opposes the mandates. I don’t agree with Wolff but it got me thinking about the assumptions around the persistence of the pandemic. Wolff is right to question the common assumptions but he comes up with the wrong solution.

The reason I support vaccine mandates is that all policies are in a vacuum. It may very well be a violation of certain freedom to mandate vaccines and in a socialist utopia on our horizon we would not have a profit making machine that creates pandemics nor would we have an authoritarian state to mandate treatment for them by profit-making companies. But in our world, where our immediate choices are capitalism with vaccines and capitalism without vaccines I’ll take the former.

Our lives aren’t free under the current tyranny of the employer-employee relationship, according to Mr. Wolff. He’s correct. What’s one more unfreedom to add to the list when it saves the lives of the working class?

Noam Chomsky has a better argument in favor of vaccine mandates. Professor Chomsky compares vaccine mandates to traffic lights. Sure, in a vacuum traffic lights restrict freedom. But they also make us safer.

To counter Wolff let’s be more specific with this analogy. If the assumption of the opposition to the vaccine mandate is that it oppresses the working class more than the ruling class then let’s say the same dynamic holds for traffic lights. In fact the same dynamic holds for everything, including both sides of this debate. If someone runs a traffic light they get a ticket. Billionaires wouldn’t be punished by a small fine. A poor person could not be able to pay the fine, or they could miss a bill or go into debt or jail.

However, if we simply gave freedom without considering class the same thing happens. Poor people don’t have affordable health insurance in case of a car accident without lights. They’re more likely to be on the road working and more likely to be charged with a crime for running someone over, assuming we still had laws about that in this hypothetical.

The question Chomsky poses for us is not who is worse off from a policy, the working class or the ruling class. Because the answer for every policy is that the working class will be treated worse. The question is which is better for the working class, a world with traffic lights or a world without? Assuming of course that abolishing traffic lights wouldn’t lead to a socialist revolution. If that policy could lead us to such grand heights then we could have an argument about it.

I’ll apply the same logic to the vaccine mandates. Yes the rich can more easily cheat their way out of the mandates and they are more likely to have money independent of a job requirement. On the other hand it’s irrefutable that poor people are far more likely to die of coronavirus than rich people are. So the question is the same. Which is better for the working class; a world with people vaccinated or a world where people can choose not to be?

If we assume Richard Wolff is right, and that today is not a time of freedom for most people because of their relationship to the capitalist class, then it seems to me that freedom to choose to get a vaccine is a small liberty in a world where you can’t choose whether or not you have protection from the virus. Either way freedom is violated. The question is which is worse for freedom?

If Wolff is saying we spend too much energy trying to get fascists vaccinated and not enough energy to provide access of the vaccine to the working class then I would agree with most of his framing. It seems to me that the obsession over getting American fascists vaccinated while completely letting the entire rest of the world get infected reflects the ruling class’s attitude in general about the Republican’s small and bourgeois base.

Remember how much effort was wasted spewing nonsense about how Democrats just needed to cater a little more to the fascists and they would win? All of this while the working class, who don’t or can’t vote at least half the time, is completely ignored. The same can be said for the vaccination question. There is no effort by governments or corporations to vaccinate the vast majority of the global working class and the entire effort is spent convincing American fascists that they should listen to liberals.

There is so much cynicism around vaccinating the working class that left liberals are proclaiming Omicron, by all accounts a far more contagious version of the virus, some sort of victory. This position bothers me for a couple reasons. The assumption is that this variant is more contagious but is not as bad for your health. Perhaps. But this second part is less certain. What happens for the following variant? If the virus continues to get more contagious won’t we all be infected? Isn’t this the exact same position as the conservative herd immunity proposition that renders people disposable rather than address the pandemic through policy?

What does this supposed new reality of extremely contagious virus mean for the unvaccinated?

In a similar vein while the virus itself might be the most damaging part of the pandemic for the rich, the poor face an even greater economic threat if the pandemic continues. I’ll explain why this makes opposing vaccine mandates a reactionary position in a minute. My first point on this front is that the implication of a more contagious disease even if it is less deadly means more economic shutdowns and thus more money being funneled upwards to the rich.

The reactionary position is that opening up the economy saves the working class. This isn’t true. That’s because ultimately the economies running in a way that allows people to continue to work regular hours relies on people voluntarily spending. If the pandemic persists then the economy won’t open up because people will choose not to buy things for their own protection, not because the government prohibits them from doing so. Therefore opposing vaccine mandates on the basis that it helps the working class makes no sense because a prolonged pandemic just squeezes the working class more.

Now someone may respond that freedom to not take the vaccine is freedom for the working class. Even if that is their position then I have to ask why not advocate for the majority of the world to get that same choice of whether or not to take the vaccine. The reality is that most people are forced not to get the vaccine while very few people are forced to get it.

Now comes the rebuttal. These drug companies are all about making money! Yeah, duh. That’s why they don’t distribute the vaccines to most of the world where they can’t make a profit. The problem with capitalism isn’t necessarily that it makes faulty products.

Capitalism creates technological advances, including the vaccine. The issue is more that the technology can’t be distributed unless it’s done in a profitable way. Solar power is way cheaper than fossil fuels but it’s too cheap to make a profit off of. That’s why capitalism is stupid and the economy should be organized around human needs not profit. That’s the argument for socialism and on that logic alone I don’t know why one would be against vaccines.

Still let’s continue in good faith. The vaccines clearly aren’t keeping up with the virus in the way we would want. So new vaccines keep needing to be made and new profit is being made. These vaccine companies don’t want the pandemic to end because they make money from it continuing. So as all of this goes on not only do they lack the original incentive to vaccinate poor countries because that on its own this is not profitable but they also have a broader incentive not to vaccinate poorer countries because that keeps the pandemic going.

And yes I’m sure there are some medicinal methods that help combat the virus that isn’t profitable and therefore aren’t being distributed either under the logic of capitalism. I really doubt that any of them are nearly as effective as the vaccine but in the face of no distribution of the vaccine, we should not be opposed to looking at these alternative methods as supplements to our larger goal of universal vaccination.

Would a better goal be universal freedom of choice to vaccinate? I don’t know. It sounds so bourgeois to me. In the fascist USA we tend to define our ideal of liberal democracy not by the universalism of liberal democracy. Instead, liberal democracy is seen to be liberal democracy only when it bends backward to accommodate fascists who aren’t interested in liberal democracy. Giving those interested in abolishing liberal democracy an equal say to those who want it seems to be the way liberal democracy cannot sustain itself.

Likewise, I question if obscuring the main problem of vaccine distribution with a question of vaccine choice is really helping anyone. The pandemic continuing will have awful health and economic implications for the global working class. I think opposing vaccine mandates is the wrong answer but even worse, it’s the wrong question.

The term “working class” in the US is generally code for white male middle-class Americans, likely even small business owners. But I will use the word below without those assumptions.

The left should be for the working class, rather than frame itself as of the working class. Proclaiming that the left is of the working class denies people agency to make their own decisions. The working class relates to economic production and should be able to choose for itself, as a whole, what it wants. The task of the left is not to tail this position and decide for the working class what it wants.

The task of the left rather is to empower and support the working class, regardless of their political positions, real or imagined. In a democratic society the working class will dictate political economy, but in reality this seldom happens. However, no matter what else is going on the left should be for the working class rather than try to be of the working class as a form of postured authenticity.

I understand the left and working-class almost entirely overlap. My point is that the left is a political position while the working class is a class position. One can be both but they aren’t the same. Trying to have the left simply follow around an imaginary working class consensus not only most often misreads the working class but it also is by definition an apolitical position.

What the left should be doing is politics, for that is what the left is. The politics of the left should be to support the working class no matter who they are or what we think of them.

In this case, supporting the working class does not mean fulfilling bourgeois ideals of free choice but rather it means providing full access to vaccination in order to get people safe and healthy enough to confidently demand more from the capitalist class without fear of losing work, which is the leverage the working class has over the capitalists, who need to exploit the workers to compete with other capitalists.

A prolonged pandemic means that companies will continue to cut hours and wages sporadically, unions will run out of money, working people will organize less, travel to escape economic hardship will be restricted, violence against women will rise, and health care will be harder to access.

Opposing lockdowns, vaccine mandates and the like assumes that it is an authoritarian state that is pulling the strings behind these trends rather than people collectively taking less risks in order to protect their health. The overreach from the government comes from their handouts to corporations, including vaccine producers. Socialists generally oppose all authority, state included, upon the working class.

In that spirit, I oppose all authority of the left to represent the working class. Each person should have the right to represent themselves. Especially the working class. The left-wing position, in my opinion, is to get as many people protected from the virus as possible. Until I see material proof that vaccine mandates provide anywhere close to the same threat as the virus, I don’t see how there’s an argument.

Nick Pemberton writes and works from Saint Paul, Minnesota. He loves to receive feedback at pemberton.nick@gmail.com