Book Cover

Democratic
Capitalism,  The Way to a World of Peace and Plenty
by Ray Carey

Hard/Softcover/Kindle - 5 May, 2004, Available on Amazon.com

Ray Carey presents the theory and practice of democratic capitalism by coupling his experience with a synthesis of the thought of Adam Smith, Karl Marx, and John Stuart Mill.  The empirical evidence is clear: democratic capitalistic companies produce superior results, and nations that support economic freedom and keep money neutral improve the lives of their people.


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CCDC Blog

22. CCDC 1/25/2018

Updated on January 26, 2018

The attached article "The good vs the bad capitalism" is important because lack of understanding has caused a slower growth since the beginning of capitalism. Most of the culture criticizes the "bad" capitalism but have very little understanding of the good capitalism. The prevailing view of capitalism is a conflict between capital and labor. Piketty's book last year confirmed that capital had a better return than labor. He gave no reason that this was inevitable and indicated that it was because of the structure.

Capitalism is criticized because the profit motive causes the mal-distribution of wealth in a system that is not humane. Paradoxically the good capitalism maximizes wealth because the worker-owners find their potential in the work place. It provides the wealth to live well and the humane environment to live in trust and cooperation.

Robert Owen demonstrated that wealth was maximized if the environment were humane. Because he knew that the culture did not encourage trust and cooperation it required education from as early as three to produce this productive culture.

Owen also knew what bad capitalism was. He described the beating of children of both sexes under the age of eight to keep them working hard on spinning mills on the night shift.

Good capitalism has the simple requirement that money be managed for the general welfare. After the Napoleonic Wars the British "capitalists" influenced the state to manage money for the benefit of the privileged. A condition that has continued for over two centuries.

The all important education to equip citizens with an understanding of the good capitalism is aided by the study of Owen's experience a half-century earlier by Mill, Marx, and Engels. They all captured the change in the work culture that maximized wealth by the humane culture. Mill provided the democratic capitalist manifesto that is on the website, Engels provided an eloquent description of the work environment and Marx even predicted the end of war when nations instead gave priority to trade by "fully developed human beings."

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Good Capitalism vs Bad Capitalism

Robert Owen (1771-1858) was one of the first democratic capitalists. Born in Wales, he left home at age ten, learned how to spin thread, and then became the manager of a factory. By age 28, he had become managing partner of a concern that bought New Lanark, a large spinning mill near Glasgow from Robert Dale, and married his daughter.

Owen spent years communicating with workers on the factory floor who gave him a confident belief that the good capitalism could maximize wealth:

The period is arrived, when the means are obvious by which
without force or fraud of any kind, riches may be created in
such abundance, that the wants and desires of every human
being may be more than satisfied. In consequence, the dominion
of wealth and the evils arising from the desire to acquire and
accumulate riches are on the point of terminating.

Owen knew that free markets, identified earlier by Adam Smith, could improve growth and profits. He was unique, however, in his knowledge that freeing the workers to reach their productivity and innovation potential would add more substantial wealth in the good capitalism:

If due care of your inanimate machines can produce beneficial results, what may not be expected if you devote equal attention to your vital machines, which are far more wonderfully constructed. Your time and money so applied would return you not five, ten, or fifteen percent, but often fifty and in many cases a hundred per cent.

This discovery of how to maximize and distribute more wealth through the motivation and reward of the workers is not yet well understood.

When Owen toured other mills he found instead of encouraging the worker to reach potential the bad capitalism pursued short term profits in ways that instituted the negative view of capitalism that continues to the present.

Greed of gain had impelled the mill-owners to greater extremes of inhumanity, utterly disgraceful to a civilized nation. Their mills were run fifteen hours a day with a single set of hands, and they did not scruple to employ children of both sexes from the age of eight. Overseers carried stout leather thongs, and even the youngest children were severely beaten. In some large factories one-fifth of the children were either cripples or otherwise deformed by excessive toil or brutal abuse.

The freeing of the mind in the prior century resulted in technology that simplified the spinning machine. Instead of higher wages for the workers, however, the bad capitalists used the new technology to put children to work running the spinning mills.

After Owen verified this good capitalism producing and distributing more wealth he took it to the authorities thinking that they would be excited to find this way to peace and plenty. The authorities were, however, busy collaborating with the rich and powerful to fight inflation by putting people out of work. One of the Austrian economists, Ludwig von Mises wrote about this aspect of bad capitalism:

When, after the Napoleonic Wars, the United Kingdom had to
face the problem of reforming its currency, it chose the
return to the pre-war gold parity of the pound and gave no
thought to the idea of stabilizing the exchange ratio between
the paper pound and gold as it had developed on the market
under the impact of the inflation. It preferred deflation to
stabilization and to the adoption of a new parity consonant
with the state of the market. Calamitous economic hardships
resulted from this deflation; they stirred social unrest and
begot the rise of an inflationist movement as well as the
anti-capitalistic agitation from which after a while Engels
and Marx drew their inspiration.

When the Federal Reserve was founded in the early 20th century this inflation fighting practice used the Phillip’s curve and the more sophisticated NAIRU (non accelerating inflation rate of unemployment) to determine how many people should lose their jobs to protect the wealth of the rich.

Engels, Marx and John Stuart Mill in mid-19th century all studied Owen and reflected it in their visions of a world of peace and plenty. Along with Owen they all wrote books about the good capitalism.

Marx commented:

As Robert Owen has shown us in detail, the germ of the
education of the future is present in the factory system;
this education will, in the case of every child over a given
age combine productive labour with instruction and
gymnastics, not only as one of the methods of adding to the
efficiency of production, but as the only method of
producing fully developed human beings.

Owen believed that the enormous productivity and innovation of turned-on people could be released only if built on the worth and potential of each in an environment of trust and cooperation. Owens company sponsored free education, training, clean housing, health care, and job security. He brought together upwards of a hundred children, from one to six years of age, under two guardians. They were trained to habits of order and cleanliness; they were taught to abstain from quarrels, to be kind to each other. Over a twelve-year period, out of 3,000 students not a single criminal action occurred. Owen understood that for workers to reach their fullest individual development they had to first learn how to function in a harmonious whole. Although this instinct is natural to humans it had been suppressed by thousands of years of predatory domination. Owen was criticized for these uncommon investments but he made greater profits than the Mercantilist capitalists that tried to maximize profits by suppressing wages. For the next two centuries, however, it was the bad capitalism that captured the attention of the intellectual community almost to the exclusion of any interest in the good capitalism. Most academicians had accepted Aristotle’s (344-322 B.C.) view that “ a man who lives the life of a mechanic or laborer cannot pursue the things that belong to excellence.” Aristotle learned his contempt for commerce from Plato (427-347 B C) who wrote “It is important for the state to keep its trading class as small as possible. Trade should not be made over by a class of people whose corruption will not harm the state unduly.”

Many academicians accepted this Greek contempt of commerce as it sustained their sense of superiority. It also resulted in their defaulting on their responsibility to study economic alternatives that could have led to an understanding and greater use of the good capitalism.


21. CCDC 12/22/2017

Updated on January 26, 2018

Democratic Capitalism-- Book Review

Julia Sneden based her review of Democratic Capitalism on her reading as I had no communication with her. Her review supported my premise based on fifty years experience running companies that democracy and capitalism should be synergistic not in conflict as most academicians believed. This will be examined further in the next Carey Center article “Good Capitalism vs. Bad Capitalism.”

Copies of Democratic Capitalism are available at no charge for you and your associates including students. Please provide a mailing address.
_____________________________________________________

Review of Democratic Capitalism by Senior Women Web
Culture Watch


Democratic Capitalism is a fascinating, important, erudite book that leads the reader through the history and development of capitalism making a clear case for what needs to be done in the future.

This fascinating, important, erudite book is not an easy, weekend read, nor a book you’d like to take on vacation for a beach read. It requires patience and hard thinking. Fortunately, it is written in a clear, accessible style that leads the reader, step by careful step, through the history and development of capitalism, and explains the current state of the world’s economics in terms even a layman can comprehend. It also makes a clear case for what needs to be done in the future.

That’s a tall order for one book, but the author acquits himself handsomely. Carey served as CEO for ADT for many years, and has, since his retirement, spent untold hours of thought and research before writing this book. It is a masterpiece of meticulous documentation (there is a 20-page bibliography) and explanation. The proposals set out in the final chapter are short, clear, and well-supported by the preceding evidence.

Carey begins by reviewing the 18th century writings of John Stuart Mill and the 19th century theories of Karl Marx. Both men expounded new theories about the equitable distribution of wealth, Mill believing that a free market system could eliminate scarcity, and Marx maintaining that only a revolutionary approach could rebuild the world’s economic systems. Carey comes down squarely on Mill’s side, although he points out that toward the end of the 20th century, the United States has strayed widely from Mill’s principles, veering off into what Carey terms “Ultra Capitalism.” This he defines as “... short-term and greedy ... [a] record concentration of wealth that ... limited the spread of economic freedom and provoked global social tensions and violence.”

This is a hard charge, but Mr. Carey makes a most convincing case for his theory. The next time you find yourself asking why so much of the world hates us, pick up this book. The answers it offers are painful to read, but pretty much incontestable.

What, then, is democratic capitalism? It is a system that combines the best aspects of the political construct of democracy with the economic construct of capitalism. Carey’s premise is that in the past, we have gone about things in the wrong order, seeking to establish the political structures of nations first (as in post-Soviet Russia), and then to encourage their economic development. Done the other way around, i.e. seeing first to the economic stability, democracy is bound to follow. He believes that people everywhere long first for the basic material comforts (food, a place to live, a job). Once those things are achieved, they long also for freedom, as defined by democracy.

Democratic capitalism’s “...common features include a fundamental morality broadly understood, customer loyalty, high levels of productivity, job security, meritocracy, minimum structure, action orientation, and a compensation system that is both fair and perceived to be fair.” Moreover, under democratic capitalism, workers will have minimal interference from management, and encouragement in their desire to be innovative. Democratic capitalism will also harness the power of worker involvement, sharing profits that will create worker/owners through plans like payroll-deduction stock purchase and 401K plans.

In his explanation of how he himself came to be a passionate believer in democratic capitalism, Carey summarizes his own career, during which he learned effective methods of motivating the people who worked for and with him. As he moved up the career ladder, he began to formulate the principles that brought great success both personally and for the companies he ran.

Carey cites thinkers all the way back to Aristotle. The list of his readings is astounding: Galileo, Descartes, Isaac Newton, Condorcet, Edmund Burke, Thomas Jefferson, James Madison, Robert Owen, Kant, Hegel, and so on and on. To say that he has been both catholic and meticulous in searching out his sources is an understatement.

Democratic Capitalism is an important book. When you’ve read the book, you might want to consider sharing your copy with your Congressman or Senator, who would probably thank you for it.


20. CCDC 11/29/2017

Updated on January 26, 2018

At the time of Mill, Marx and Engels educational material on the superior economic system was available. It was not used for the reasons described in this CCDC article.The result is a feeling in society that the economic standard and the quality of life should be better. They are right.

When most academician find that the title of the book that I wrote is Democratic Capitalism, the Way to a World of Peace and Plenty their frequent response was "Isn't that an oxymoron?" If I find one who will listen I explain that is is not an oxymoron and that the question indicates to me that the person who asked it is defaulting on their responsibility to add knowledge of a superior economic system for broader application.

Ray Carey
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J.S. Mill’s Democratic Capitalism Manifesto

In mid 19th century John Stuart Mill, Karl Marx, and Friedrich Engels studied Robert Owen’s demonstration of substantially greater profits from investing in his workers, “vital machines” as he called them. The culture in his spinning mill was trust and cooperation which Owen cultivated through company sponsored education of students as young as three.
Marx described the productive results from changing the culture from alienation to cooperation and even saw an end to war as nations switched to democratic capitalist trade. Engels described workers freed to reach their potential. Mill’s book had a whole chapter on worker ownership systems.

Mill’s manifesto combined greater wealth production with worker satisfaction:

The other mode in which cooperation tends to increase the
productiveness of labor, consists in the vast stimulus given
to productive energies, by placing the laborers in a relation
to their work to make it their principle interest—at present
it is not—to do the utmost, in exchange for their
remuneration. It is scarcely possible to rate too highly this
material benefit, which yet is nothing compared to the moral
revolution in society that would accompany it; a new sense of
security and independence; and the conversion of human’s daily
occupation into a school of the social sympathies and the
practical intelligence.

If democratic capitalism is superior in both profits and worker satisfaction why is it not the universal system? The answer is that instead of studying Owen’s positive experience of investing in the workers most academician inherited from Plato and Aristotle a critical view of capitalism and commerce. They viewed the State as the agent for social progress while Greece was over one-half slave, absorbed by repetitive wars, and without public education. Aristotle wrote: “a man who lives the life of a mechanic or laborer cannot pursue the things which belong to excellence.” Plato wrote: “It is important for the state first to keep its trading class as small as possible; second, trade should be made over to a class of people whose corruption will not harm the state unduly.”

The self-development of workers was inconsistent with this Greek tradition, but an awareness of this contradiction did not penetrate the cultural conditioning of most academicians, then or now. This view had a long life because it seemed to confirm for each generation of academicians that they were superior beings. The road to peace and plenty will not be found until the academic community studies economic alternatives and finds the system that maximizes wealth by providing humans the opportunity to reach potential.

19. CCDC 11/15/2017

Updated on January 26, 2018

HANSOME ENERGY SYSTEMS INC.
November 14, 1995
Diane Dunlap
Dean, Graduate School
Hamline University

Dear Dean Dunlap:

I was very happy to hear about the plans for the “Carey Center” at Hamline University. It has been a source of much frustration to me that business concepts which I have seen working and which I admire have so little visibility in academia.

Ray Carey was Chairman of the Board and CEO of ADT Security Systems Inc. when I joined their Engineering Department in 1973. My specialty was Microwave Transmission Systems, and my previous employers were Bendix Navigation & Control Division and IT&T Avionics Div. Working at ADT was very different from working at either Bendix or IT&T.

ADT had a charter which was taken seriously. We, the employee-associates, were entrusted with a business which we ran for the benefit of the stockholders. We were encouraged and helped to become stockholders through profit sharing. The needs of the employees were recognized as an important benefit to the stockholders, and a “relaxed and purposeful atmosphere” provision was in the charter. The organization was advancement was by merit. There was a real sense of togetherness and common purpose between senior management, mid level management, and associates. At ADT, I didn’t know at first who was union and who was not, which was absolutely incredible after Bendix, where we were not allowed to touch an instrument without being “covered” by a union technician sitting behind the working engineer. At ADT, the union members were part of the team.

My personal history might illustrate how Ray Carey’s management philosophy worked in practice. I started as a consulting engineer with ADT’s corporate headquarters that I was a woman was simply not a factor. Several months later my husband was offered a wonderful job in Chicago. In a two career family tough decisions come up and we decided that the move to Chicago was in the best interest of the family. I explained the situation to my boss at ADT and offered my resignation. Their response was incredible. Although all Engineering was in N.Y.C., I was encouraged to stay with ADT, and work out of a local field office on stand alone consulting projects with monthly debriefings at the Corporate office. I was delighted to accept that offer.

In early 1976, I was called to the Corporate office and offered a position as Regional General Manager for ADT’s field operation in Chicago. The responsibility involved sales, installation and service of alarm systems, a multimillion dollar operation with several hundred employees. Very different from Engineering. Ray Carey explained that he believed that management skills are universal and transferable. Needless to say again, the fact that I was a woman and that all the managers reporting to me would be men did not enter into the conversation.

I enjoyed my seven years as a field general manager. During those years, the “rust belt” that Chicago was in, went through tow major recessions. Mr. Carey instituted a no layoff policy. Yes, we did have an obligation to the stockholders and yes we needed to have the company succeed but not through layoffs. We needed inventive products and excellent service, and our associates were to be re-trained to work with the new products.
There was some concern among outside training consultants whether our very long time employees could be retrained to use the new computer systems, but Mr. Carey insisted they could. He was right. Many of our senior people became the best installers and operators of the new systems.

All through that bleak period of 1979 to 1982, investments in automation, and training continued and there was profit sharing. We did not have layoffs and profits held up.
In 1983 I was promoted to Corporate VP of Engineering at the NYC headquarters. We moved back east.

My experience at ADT was not unique. There were other senior women in management; the General Manager of Holland, a Regional Controller in St. Louis, a Branch manager in California, and others. We had an Afro-American woman selling security systems in Chicago. When she was hired, the prediction was that a woman, and a black woman at that, would have no credibility in this highly technical sales field. She did exceedingly well.

The ADT meritocracy did not serve only women and minorities. When I looked around the table at the Regional General Managers meetings, we were a mixed bunch. There were people with advanced degrees from MIT sitting next to some who did not graduate college. All were promoted purely on the merits of their work.
By 1987 the revenues of ADT had increased fivefold since I had joined the company in 1973. We had a very strong balance sheet and the takeover frenzy was at its height. As they say, the rest is history.

Still, I learned through my youngest son who works for ADT in Minneapolis/St. Paul that despite all the changes and pressures after the takeover, many of the basics installed at ADT remain.
During the years I was in the field at ADT my two older children were going through college. They were at Brown University and University of Michigan where they were given a very negative view of business, with no feeling at all for the contributions that sound business practices bring to a country. I hope that the “Carey Center” would be able to redress that situation, enable students to differentiate between the various business systems, and educate them in the canons of Democratic Capitalism, which worked so well for us.

My personal contribution to help in the “Carey Center” start-up is inclosed.

Sincerely,
Selma Rossen
President

18. CCDC 11/9/2017

Updated on January 26, 2018

HANSOME ENERGY SYSTEMS
November 13, 1995
Dean Diane Dunlap
Dean Graduate School
Hamline University

Dear Dean Dunlap:

How delightful to learn that a “Carey Center” is opening at Hamline University in St. Paul, MN this fall.

I’ve had the good fortune of working with Mr. Carey in his early years when he was a General Manager of a motor manufacturing Company, and later while he was on the Board of Directors of my present Company. This relationship has extended over a period exceeding forty years.

It was during this association that I realized the possibility of starting a business of my own following his management philosophy.

What a revelation it was to see how his technique differed so markedly from that of many of his predecessors. In his daily walks through the factory, Mr. Carey would stop at various work stations and chat with the operators. It was evident that they looked forward to these daily visits for they in turn often made suggestions on how to improve certain operations. This relationship proved invaluable, particularly after a devastating fire which started at an adjacent plastics factory, spread and completely destroyed our entire facility in 1963.

At the time, the company was engaged in designing and manufacturing low noise motors for installation on nuclear submarines for the U.S. Navy. Motors had to be delivered to match critical shipbuilding schedules. Without a factory, the task appeared to be impossible.

As Division Manager, Mr. Carey set up temporary offices in a nearby mattress company and immediately formed special groups, each assigned to a specific task. The three major categories were:

1. Locate ongoing manufacturing facilities that would cooperate by taking on our fabrication and machine work.

2. Find and retrieve motor drawings from customers, shipyards and naval activities.

3. Search for a new factory within acceptable employee traveling distance.

Each evening the groups would meet to exchange information on the days events.

I remember clearly hearing words of skepticism from our own corporate people, as well as media representatives, regarding our chances for success.

However, cooperating manufacturers were located in record time and they began producing parts, rapidly, under our supervision. This enabled us to deliver some motors in time to meet the required shipments.

As a result, many letters of commendation were received from Government Agencies, Shipbuilders and Naval Activities. This reaction encouraged corporate headquarters to pledge further assistance in searching for a new manufacturing plant. Shortly thereafter a plant was located and bought. Machinery was then borrowed from Government stores and the new factory went on-line. Throughout this entire resettlement period, motors continued to be produced.

There is no doubt in my mind that these results stemmed from Mr. Carey’s unusual visionary leadership. First in convincing corporate management to rebuild and continue the Division. Second in creating an atmosphere of teamwork, which helped achieve the necessary results and which profited everyone. I have oversimplified the process to be sure, but reviewing Mr. Careys work on “Democratic Capitalism,” one can see the correspondence between theory and practice. He was a strong leader who respected people and empowered them. They in turn trusted and respected him and together, we accomplished much.

Many years later Hansome Energy Systems was founded by three fledgling entrepreneurs using the Carey guidelines. We design, assemble, test, utilize the manufacturing facilities of others, and encourage company stock ownership by employees. Now in our 25th year in business, we continue to enjoy a family like atmosphere.

Enclosed is my personal contribution to the “Carey Center,” with every wish for its success and continued growth. Also enclosed is Hansome’s contribution.

Very Truly Yours
A.F. Reposi
Chairman & CEO

17. The Way to Peace and Plenty

Updated on January 26, 2018


Capitalism produces wealth from market freedom and competition, democratic capitalism maximizes wealth from worker participation. Their sharing in the improvement sustains motivation and adds consumer income that increases economic growth. The value system is trust and co-operation, the impediments are mal-distribution of wealth and violence among nations and people.

Surplus wealth was built by firing workers engaged in growth programs and by not increasing wages for productivity gains. Corporations avoiding taxes left $6 trillion of this surplus sitting in foreign accounts. The distribution of this surplus depends on a critical Board decision. It should be returned to the workers in wages, dividends, and profit sharing that add to economic growth, but managers influence Boards to repurchase shares to hype the value of options while hurting economic growth.

The workers are now capitalists through their pension funding, but they are not yet organized to influence policy. Finance capitalism continues to dominate the economy and influence politicians. Reformers who should correct this capitalist perversion do not understand wealth production from democratic capitalism; instead they concentrate on the political structure that distributes wealth.

CCDC June 27, 2017

16. Democratic Capitalism: The Way to a World of Peace and Plenty

Updated on January 26, 2018


For some time there has been a general feeling that there is something wrong with the American economy. There is: the domination by finance capitalism slows growth and keeps millions from good jobs.

The solution: Democratic Capitalism, was described in my book but it was rejected by publishers and received no reviews. I published and distributed it at my expense but in time the following leaders of industry and education confirmed the solution.

Reuben V. Anderson, Esq., First African-American Mississippi Supreme Court Justice, Director of A T & T. and Kroger
“I have followed Ray Carey’s work, and just as important the young scholars he’s nurturing. I know of few things taking place in this country that are as exciting as Ray’s vision of democratic capitalism. I look forward to working with him and hopefully introducing democratic capitalism at the Univ. of Mississippi School of Law.” (1996)

John C.Bogle, Vanguard Founder, Author, The Little Book of Common Sense Investing
“Thanks Ray for your wonderful manifesto. I share your enthusiasm for tax-free dividends for low-and-middle income citizens. This administration has got it backwards. Great breaks on dividend income for the super rich and virtually nothing for the rest of America. Mutual funds rip-off the man in the street by confiscating their dividend income.” (2004)

Gerald F. Cavanagh, S.J., Chair of Business Ethics, University of Detroit Mercy
“Ray, you did a superb job of stating both the weakness of financial capitalism and providing some suggestions for remedy. I do not know of any assessment that is as experienced, wide-ranging, and informed as yours. It is essential that a wider group of people hear that assessment; your analysis must have a wider exposure.” (2005)

Diane M. Dunlap, Ph.D., Dean, Graduate School, Hamline University.
“We are impressed with Ray Carey’s vision of democratic capitalism and are committed to making his vision a reality in school and university curricula. We have made a good start this term in running a graduate-level seminar with Education, Public Administration, Liberal Studies, and Law faculty and students present. We have argued and thought about democratic capitalism for the semester. Tonight is the last class, and I can tell you that the whole group is even more committed to the critical need for Ray’s vision across the globe at the end of the semester that we were at the beginning.” (1996)

Denny Flynn, Former Vice President Finance, ADT
“Ray, your book was an excellent read, the resolutions are even better and are one of the best writings I have ever read. I shall keep a copy handy for an opportunity to share it with a wider audience.” (2006)

Robert W. Galvin, Chairman of Executive Committee, Motorola
“Thank you for the update Ray, I rarely find anything that I can do other than applaud when you are the advocate.” (2001)

Dr. Michael T. Greenwood, Professor Fitchburg State University
“Again you make the complex simple. When are the American people going to benefit from your talents in Washington? I sincerely wish there was some way to build you a bigger soapbox someday. America needs your thought leadership.” (2014)

William Greider, National Affairs Correspondent, The Nation, author, Secrets of the Temple, One World, Ready Or Not, Fortress America
“Ray, I express my great admiration for what you have accomplished. You have created something of value that will be important and enduring—a book that helps others understand our circumstances more deeply and perhaps gives them the courage to engage in changing the future. Liberals typically don’t understand capitalism and are intimidated by the subject. Your voice can be especially meaningful in bringing around such good people, helping them out of the fog.” (2004)

Michael Hartoonian, Ph.D. Professor, College of Education and Human Development, University of Minnesota, Past President, National Council for the Social Studies
“Carey’s work gives a needed historical perspective to the principles of democracy and capitalism. The attending intellectual discourse and action that it invokes are urgently needed both in our nation and in the larger world. Carey gives birth to a new 21st century idealism and presents a heroic plan for economic and ethical harmony.” (2004)

George T.Maloney, Former CEO and Chairman of the Board, C. R. Bard, Inc.
“When Ray sent me his book he said that I, like him, was a democratic capitalist. I could not argue with him because I did not know what one was. Reluctantly, I took the book with me on a vacation in sunny Puerto Rico and returned without a tan because I became fascinated with Ray’s work. I am proud that Ray recognized me for what I am: a democratic capitalist. I believe that Ray’s work is in the early stages of what could, in time, be the template of: “How to make America great again.” ( 1995)

Whitney MacMillen, former CEO and Chairman of Cargill
“Flying back from Washington recently, Ray, I found the peace and quiet time to read your chapter 10. It’s a superbly laid out program based on deep philosophical roots and common sense. I share all of your views about the need for democratic capitalism over financial capitalism. I also agree with your rationale toward short-term “itis” and the misallocation of resources through the float of the dollar and ERISA.” (2003)

Robert H. McCaffrey, Former Chairman and CEO, C R Bard, Inc.
“Ray, I always thought of myself as a capitalist but hated to say so for fear of being classed with “Wall Street,” Now you’ve so clearly articulated the difference between democratic capitalism and financial capitalism, that I see that my philosophy of operating companies was close to that of a democratic capitalist. I hope you can get your book into the right hands so that the best political and economic thinkers can start to give serious consideration to changing how we approach our social and economic challenges through emphasis on democratic capitalism.” (2003)

T. Ballard Morton, Former publisher, professor at the University of Louisville, Kroger Director
“Ray your book is an extraordinary accomplishment, and I gained much insight from reading it-and studying it. I found your account of the Enron debacle the most complete analysis that I have read. Your explanation of ultra-capitalism makes so much sense. I just did not know how much Wall Street has been able to dominate us.” (2004)

Charles T. Munger, Warren Buffett’s partner
“Thank you for sending me Democratic Capitalism. I read it through in one sitting, ending in the early morning hours of the following day. I am as horrified as you are by what you call “ultra-capitalism”, with its huge collection of talent seeking “croupier” type profits in derivatives trading, promotional investment funds, and the most misleading parts of investment banking. I share your dismay with respect to formal education in leading universities as they deal with subjects outside the hard sciences.” (2004)

Michael Osheowitz, Chairman Edwin Gould Foundation, New York
“Ray’s important and timely book emphasizes how the U. S., through democratic capitalism, is capable of unifying its people, elevating many who live in poverty, and set an example for the rest of the world. Carey is unique! Part philosopher, part CEO, he applied his beliefs to his company and transformed it into a well managed meritocracy in which associates acted like owners, worked as a team, and were rewarded based on performance, a true culture of equal opportunity.” (2004)

A.F.Reposi, Chairman and CEO, Hansome Energy Systems, Former Marketing Manager. Electro Dynamic Div of General Dynamics
“What a revelation it was to see how markedly Ray differed from his predecessors. In his daily walks through the factory, Ray would stop at the various work-stations to chat with the operators. They looked forward to these daily visits and often made suggestions on how to improve certain operations. This relationship proved invaluable after a devastating fire that completely destroyed Electro Dynamic in 1963. There is no doubt in my mind that our “miracle” recovery stemmed from Ray’s unusual visionary leadership. First in convincing corporate management to rebuild the division; second in creating an atmosphere of teamwork, which helped achieve the results and which profited everyone. Reviewing Ray’s work in Democratic Capitalism, one can see the correspondence between theory and practice. Ray was a strong leader who respected people and empowered them. They in turn trusted and respected him and, together, we accomplished much. Many years later, Hansome Energy System was founded by three fledgling entrepreneurs who had all learned from Ray and applied his guidelines.” (1995)

Selma Rossen, President Hansome Energy Systems, former V.P. Engineering ADT, Inc
“ADT had a charter that was taken seriously. We, the employee-associates, were entrusted with a business that we ran for the benefit of the stockholders. We were encouraged to become stockholders through profit sharing. A “relaxed and purposeful” provision was in the charter. The organization was decentralized and authority went with responsibility. Integrity was a given, and advancement was by merit. There was a real sense of togetherness and common purpose between senior management, mid-level management, and associates. At ADT, union members were part of the team.” (1995)

Robert C. Serfass, Associate Dean for Academic Affairs, College of Education and Human Development, University of Minnesota
“When I began reading your chapter 10, I couldn’t put it down without completing it. I was amazed at how your hypotheses systemically outlined virtually all of the concerns that I have as an average person who tries to keep up with how government, business, financial, and educational institutions interact to try to meet the needs of the
citizens.” (2003)

Julia Sneden, reviewer for Senior Woman’s Web
“This fascinating, important, erudite book is not an easy, weekend read, nor a book you’d like to take on vacation for a beach read. It requires patience and hard thinking. Fortunately, it is written in a clear, accessible style that leads the reader, step by careful step, through the history and development of capitalism, and explains the current state of the world’s economics in terms even a layman can comprehend. It also makes a clear case for what needs to be done in the future. The proposals set out in the final chapter are short, clear, and well supported by the preceding evidence. When you’ve read this important book you might want to consider sharing your copy with your Congressman and your Senator who would probably thank you for it.” (2005)

Richard Van Scotter, Ph.D., former V.P. Marketing, Junior Achievement
“I was impressed with the depth and scope of your knowledge on political and economic thought as well as your ability to weave these ideas into a larger theme. Many people do view capitalism only in its financial and speculative form, causing some to be cynical towards the system while others become corrupted with narrow visions of self interest, private gain, and economic power. We all have the need to better understand the potentially more humanizing dimensions embedded in democratic capitalism, which you richly capture in the manuscript.” (1995)

John Whitehead, Former Co-Chair of Goldman Sachs, and Deputy Secretary of State
“As a Director of ADT, I knew Ray Carey as an excellent CEO but did not know that Ray had the remarkable academic qualities that shine so brightly in this important book. Ray has applied his analytical skills and considerable energy to our free enterprise system and explains how it works and in specific terms how it should work better.” (2004)

Keith Wilde, Ph.D., Committee for Monetary and Economic Reform, Ottawa, Canada
“This is an unusual book, an unusually important and helpful book. It is remarkable not only for the theme, but also for the breadth of coverage and the authoritative grasp with which the topics are treated. In my opinion, Ray Carey has provided the most comprehensive and persuasive case yet for the idea of broad ownership and the best account of mechanisms for achieving it. The adversary of this democratic vision of capitalism is a parasitical financial behemoth which has been a threat to it since the dawn of industrial development in the 17th century and which vaulted into dominance as “ultra-capitalism” in the past three decades. Ultra-capitalism combines financial dominance with old-fashioned mercantilism that treats the wage earner as a disposable cost commodity. Business schools have failed to see this, and schools of economics have been its patsies.” (2005)

15. Greed versus Growth

Updated on January 26, 2018

During the 20th century fourth quarter, the source of investment capital was democratized by the workers’ ownership plans and retirement savings. The rewards from this capitalism, however, were not democratized. Wall Street “investment” banks, by then public companies dedicated to their own profitability, diverted trillions of dollars of this workers’ capital into speculative trading. On top of that, they charged management fees ten times index fund fees for no better performance. In 2013, three-quarters of big bank revenue, $105 billion, came from “trading” in everything from derivatives to currency.

The workers’ capital could have gone into economic growth, dividends, and profit sharing as well as bonds to pay for the trillions of dollars of overdue infrastructure repair. The workers’ capital was instead borrowed for trading which-along with nearly zero-cost money-caused the asset bubble crash and the 2007 recession.

Reform has been limited by arguments in Congress over the government’s providing money to stimulate consumer spending to grow the economy. One obvious source of investment money is the trillions of dollars of surplus built up in companies by years of no-growth investment. Instead of these funds being recycled into growth, much of it went into stock buy backs to hype the stock price, a self-serving action of “shareholder capitalism.” More money has been taken out of Wall Street for deals and stock buy backs than has been invested in new growth. Corporate CEOs had by then been seduced by huge stock options to align their priorities with Wall Street.

I argue in Democratic Capitalism that The Way to a World of Peace and Plenty (sub-title) is plenty through workers motivated by ownership, and that peace will result during the 21st century when nations unite in economic common purpose, the alternative to the stupidity and waste of war. This economic alternative, however, will depend on understanding and support by the educational community.



14. Hamilton’s Governors or Jefferson’s Governed

Updated on January 26, 2018

Alexander Hamilton (1757-1804) is the subject of “Hamilton,” a Broadway play that celebrates the service of the 19–year-old officer during the American Revolution and as the first Secretary of the Treasury in the cabinet of President George Washington.

Confusion about the political philosophies of Hamilton and Thomas Jefferson (1743-1826) is reflected in columnist David Brooks’ editorial review in The NYT (2/24/15). Brooks writes:

Hamilton assaulted Jefferson because he did not believe that a country dominated by oligarchs could be a country in which poor boys and girls like him would have space to rise and grow.

The opposite is true: Jefferson was a democrat with faith in the capacity of people to participate in their own governance. Hamilton’s speeches at the Constitutional Convention in 1787 described ordinary people as a confused mob who should not participate in their own governance.

Hamilton grew up on a small island in the Caribbean where a few thousand Whites tried to manage over 20,000 African slaves working the sugar fields.

He looked at the world through a dark filter and had a better sense of human limitations. Jefferson viewed the world through a rose-colored prism and had a better sense of human potentialities.

Paradoxically, Jefferson was part of the Virginia gentry. Typical of the Founders, Jefferson’s respect for ordinary citizens did not include African Americans. He never freed his slaves.

As Secretary of Treasury, Hamilton built a financial structure to fund a navy and army and protect the new Republic. He also cultivated the oligarchy with privileges to speculate with borrowed money, thereby initiating the domination of the American economy by financial capitalists. That cycle continues to the present: Those with the money favor those with the political power, and those with the political power favor those with the money. Jefferson, on the other hand, believed that banks were invented:

“To enrich swindlers at the expense of the honest and industrious.”

Jefferson had studied various economic philosophers during his years in France and knew that diffusion of political power depends on diffusion of economic power. His understanding proved right: Concentration of economic and political power has caused inequality of wealth and repetitive recessions from 1818 through to 1929 and beyond to the recent Great Recession in 2007-2008.

In Washington’s cabinet, Jefferson lost too many arguments to Hamilton, so he quit and went home. Later he became Adam’s Vice-President and the third President after Washington and Adams. He and Adams both died many years later on the Fourth of July 1826. Adams was famous for his bad temper. He lost his election as a first-term President, left in the middle of the night and did not welcome the new President Jefferson. Adams described Hamilton as “the bastard son of a Scottish peddler.”

As President, Jefferson warned his Secretary of the Treasury, Albert Gallatin, about domination by finance capitalism:

It is the greatest duty we owe to the safety of our Constitution to bring this powerful enemy to a perfect subordination.

Jefferson, however, did not know how to prevent speculation with borrowed money that caused asset inflation in stocks and real estate. The Panic of 1818 was the result, and thousands lost their jobs and hundreds were jailed for $20 debts.

Subordination of finance capitalism requires modification of the economic and political structure. Concentration of wealth in the hands of the 1% must give way to more money in the hands of workers who then recycle their money to buy goods and services to keep the economy growing. Economists call it the “multiplier effect.” This was Keynes’s persistent argument on how to reverse a recession and prevent inequalities of wealth. This goal of a balanced economy can be achieved in several ways:

• By raising wages, as Ford did in 1915 in order for his workers to buy the cars they were building.

• Through profit sharing and corporate ownership opportunities.

• By tax laws that move the trillions of dollars now sitting in corporate surplus into growth investments and dividends, instead of wasting it on stock buy backs to boost the managers’ stock options.

• By tax laws that bring home trillions of dollars of corporate surplus sitting idle in foreign accounts.

• By putting tens of thousands of people to work on the several trillion dollars worth of overdue infrastructure repair.

• By limiting speculation with borrowed money.

All Presidents shared an inability to prevent asset inflation, or don’t even try. Workers continue to lose jobs and families continue to suffer. Asset inflation can be limited by adding a risk premium for speculation to the cost of money, and by increasing the capital gains tax penalty for short-term gains.

13. The Democratic Work Culture

Updated on January 26, 2018

In my book Democratic Capitalism, I propose (in the sub title) that The Way to a World of Peace and Plenty is through the democratic work culture in which each worker is trained and motivated to reach potential.

Robert Owen, at the beginning of the 19th century, demonstrated in his spinning mill that superior performance results from worker participation. Marx and Engels, a half-century later, saw that this culture provides workers with an opportunity to reach their potential. The insights of Owen, Marx, and Engels, however, were rejected and they were forced to seek political measures to democratize the work culture. Companies, with leaders like Robert Owen, regularly identify superior performance from such a work culture but the intellectual community continues to demean generic capitalism, while ignoring examination of the democratic alternative.

From the beginning of my work experience, I became convinced of the benefits of cooperation between labor and capital. The work culture that resulted from this approach is described by two managers who worked with me. Al Reposi was the sales manager at Electro Dynamic where I was plant manager and president for twelve years. Selma Rossen was a regional general manger and V.P. Engineering at ADT, Inc. where I was CEO and Chairman for eighteen years. They are the authors of the following letters in support of the Carey Center for Democratic Capitalism.

Note Selma’s reference to ADT’s no lay off policy. This commitment to job security was an important contributor to the democratic work culture. ADT had the market growth opportunities and made good use of attrition to avoid lay offs while many were bragging about “downsizing” thousands.

Reposi Letter

Rossen Letter

12. Two reviews of Ray Carey's book, Democratic Capitalism, The Way to a World of Peace and Plenty

Updated on January 26, 2018

One of the themes of this work is that the educational community has not examined the available capitalist alternatives. For this reason, despite its superior benefits, democratic capitalism has grown too slowly.

This disinterest in capitalist alternatives prompted me to write Democratic Capitalism, the Way to a World of Peace and Plenty. A book by an ex-CEO with such a bold sub title, however, had little appeal for university professors.

Among the reviews that were written, one was by Julia Sneden, long time ‘Resident Observer” at Senior Women Web (May 2005) with a headline commending the book as “fascinating, important, erudite, a book that leads the reader through the history and development of capitalism making a clear case for what needs to be done in the future.”

Another review by Keith Wilde, fellow of CACOR (Committee for Monetary and Economic Reform 2005 Comer Publications) summarized that the book is “ unusual and unusually important, the most comprehensive and persuasive case yet for the idea of broad ownership and the best account of mechanisms for achieving it.”

These two reviews appear below, one by a person with no economic background but an interest in human progress, the other by a Ph. D. with unique understanding of capitalist alternatives.

Democratic Capitalism is still not being examined as the alternative to exploitive capitalism with its unemployment and stagnant wages. Most citizens know from experience that something is fundamentally wrong but they need broader education to understand solutions. Julia Sneden concludes her review with this suggestion: “Democratic Capitalism is an important book. When you’ve read the book, you might want to consider sharing it with your Congressman or Senator, who would probably thank you for it.”

Click here for full reviews

11. A CEO’s Dilemma

Updated on January 26, 2018

CEO Frank: You two have given me a tough decision to make. Will we spend $100 million of our surplus on a growth program being proposed by Ted, or spend it on stock buy backs recommended by Jim?

COO Ted: Boss, we need that $100 million to expand our product line. We’re profitable but growing slowly. This new product will take five years, but then will raise our growth rate by a couple of points, and hire close to a hundred new workers, including rehiring the fifty downsized last year. Every new program has a risk but I would bet on this. You told me years ago that your view of capitalism is a superior system that not only maximizes wealth but also provides jobs. “Life, liberty, and the pursuit of happiness” is an empty promise if people can’t get a job. The downsizing changed that culture pretty badly. The politicians are bragging about getting unemployment down towards 7%, but that’s a phony number. It doesn’t include those who have stopped looking for a job--the ones we should be most concerned about.

CEO Frank: You’re quite right, Ted. The real number is a record 24 million Americans of working age without a job. We want to grow the company, of course, but we were under attack by the short-sellers because of our slow growth. The big surplus we built partly by cutting back growth programs also attracted the short-sellers. My first responsibility is to our company itself! We have to protect this fine company--with all of our jobs--from the take-over artists. We brought Jim in to help us.

COO Ted: But isn’t stronger economic growth key to the condition of our whole society? When we create jobs, doesn’t that also turn workers into consumers who buy things and keep job growth expanding? I read something about a multiplier effect. Isn’t that what we’re talking about?

CEO Frank: Finance is not your thing, Ted, but you do know that the promise of a five- year program is not of interest to most Wall Street people. Long-term for them is a week from Tuesday. They are consumed by quarterly earnings—next quarter! But let’s let Jim make his proposal and then we will decide.

CFO Jim: Thanks boss! We have a great opportunity for the shareholders including the people in this room. It will not take five years, it can be done in an afternoon. I’ve been doing the financial engineering and can show you how to buy your yacht and go fishing. Our e.p.s is $1 a share and based on a price/earnings ratio of 13, slightly below average, our stock price is $13. Wall Street thinks we are solid but dull. If we take that $100 million and buy back stock, we can increase the e.p.s to $1.25 simply by dividing the profits by a lower number of shares. Another good part is that Wall Street will see that we are more aggressive in our financial engineering and probably bring our price/earnings ratio up to 17, slightly over average, for a stock price of $21. An afternoon of work and you are a wealthy man.

CEO Frank: What did the consultants you brought in propose? Was this their plan?

CFO Jim: No they concentrated more on a big new stock-option plan. Their idea is a “pay for performance” plan that avoids criticism for excessive CEO pay.

CEO Frank: How does it work?

CFO Jim: You’re rewarded only if the stock price goes up.

COO Ted: I can’t believe it! Your plan would provide a big win if the stock price goes up even if the growth rate goes down.

CEO Frank: These are pretty wild numbers, Ted. How long do you think it would take to get the stock up to $21 based on your program?

COO Ted: The new products are great and can improve annual earnings a very strong 15%, but I think you know, Frank, that it would still take over five years to get us to $21 a share. But that’s OK: What’s capitalism for--the stock price tomorrow or jobs for the future?

CFO Jim: Don’t forget, Ted, according to your interest in the multiplier effect, the money would be returned to the stockholders, including to the worker-capitalists with their trillions of dollars of pension savings and profit sharing in the stock market.

CEO Frank: Not so fast, Jim. Most of the money would go back to the money managers and be recycled on Wall Street. This bothers me because I read about Jack Bogle, the founder of Vanguard, who points out that the money managers charge ten times index funds without any improvement in performance.

COO Ted: I didn’t know--and I don’t think the workers know--how badly Wall Street is ripping off their pension savings. I know from talking to the workers that most are long-term in their thinking. They are excited about the opportunity to build the company and don’t spend much time asking questions about the handling of their pension money. Maybe they should, but they don’t.

CFO Jim: All these wonderful feelings for the company and the workers are fine, but we have a simple decision to make--$21 a share now or over five years in the future?

COO Ted: It seems like the deck is stacked. Why don’t the tax laws support growth programs or dividends returned to the economy?

CFO Jim: That’s a good question, Ted, but you must realize that from the beginning, the Founders were not able to diffuse economic power along with political power. The record concentration of wealth now in the country is the result of finance capitalism’s domination of the economy. Wall Street writes the tax rules that favor short-term stock prices. Stock buy backs will total a near record $500 billion this year. IBM will spend twice as much on stock buy backs as they do on research and development!

CEO Frank: Thanks guys—We’re getting into urgent questions that need study and resolution. Tell Congress to pass tax laws that penalize wasting surplus on stock buy backs but reward putting it back into the economy. Let me know what they say. Meanwhile-talk about short-term!—I’ve got a decision to make. If you will excuse me, I’ll go off into the corner and earn my money.

10. The Way to a World of Peace and Plenty

Updated on January 26, 2018

The concluding chapter in Ray Carey’s book presents hypotheses in a logical structure, that is, the first hypothesis must be validated before the second one can be addressed, and so on with the succeeding hypotheses.

Hypothesis #1: Affirmation of Marx’s axiom that social progress depends on movement to a superior economic system. The persistent failure of reformers to act on this axiom has resulted in the failure to place culture and political structure in support of economic freedom, in turn resulting in continued folly and violence.

Hypothesis #2: Definition of democratic capitalism as the superior economic system.

Hypothesis #3: Affirmation of economic freedom as a potentially universal system because it has demonstrated its capacity to improve lives under both democratic and authoritarian governments.

Hypothesis #4: Indictment of the domination by ultra-capitalism that causes the world’s economy to function at a fraction of its potential.

Hypothesis #5: Indictment of government privileges that have resulted in a banking system that favors the few and does not control currency and credit for the general welfare.

Hypothesis #6: Indictment of the political gridlock in the United States between those who support ultra-capitalism and those who do not use their democratic power to reform fiscal, monetary, and regulatory policies but waste it, instead, on micro-intrusions into free markets.

Hypothesis #7: Indictment of the faulty truth-seeking process that has caused the gridlock. Presentation of the process of Aristotle and Francis Bacon that could unify scholarly disciplines, bridge the managers and thinkers, and find common ground for the secular and religious.

Hypothesis #8: Identification of an agent of change: universities with their responsibility to educate citizens, train leaders, and rediscover their obligation to unify and elevate.

Hypothesis #9: Identification of an agent of change: institutional investors with the democratic power and fiduciary obligation to replace ultra-capitalism with democratic capitalism.

Hypothesis #10: Presentation of the ideal: plenty, based on a rising standard of living and a sense of economic common purpose, provides the opportunity for peace when the United Nations, with the United States of America in a cooperative role, displaces violence among nations through the rule of law.

9. America’s Russian Policy

Updated on January 26, 2018

Russian leader Gorbachev with Presidents Reagan and George H. W. Bush came close to agreement on total nuclear disarmament. Subsequently the USSR blew up and the Russian economy went into the tank. New leader Yeltsin was frequently drunk and, despite public bluster, took direction from the Clinton administration. American bad advice helped destroy the Russian economy. The greatest asset stripping in history came to be known as “shock therapy”-- more “shock” than “therapy.”

American officials then engaged in the public deceit that America “won” the Cold War. In this mood, the Clinton Administration broke the first Bush administration’s promise that if Germany was reunited as a NATO member, then the Western alliance would never “move one inch to the East.” Instead, American led NATO expanded into Warsaw Pact areas and into counties of the former Soviet Union. The present scary violence in Ukraine can be traced to that broken promise.

Ambassador to Russia George Keenan, age 94, gave this advice in an interview in 1998:

I think it is the beginning of a new Cold War. I think the Russians will gradually react quite adversely and it will affect their policies. I think it is a tragic mistake. There was no reason for this whatsoever. No one was threatening anybody else. The expansion would make the founding fathers of this country turn over in their graves. We have signed up to protect a whole series of countries even though we have neither the resources nor the intention to do so in any serious way. NATO expansion was simply a lighthearted action by a Senate that had no real interest in foreign affairs.
What bothers me is how superficial and ill informed the whole Senate debate was. I was particularly bothered by the references to Russia as a country dying to attack Western Europe. Don’t people understand? Our differences in the Cold War were with the Soviet Communist regime. And now we are turning our backs of the very people who mounted the greatest bloodless revolution in history to remove that Soviet regime. And Russia’s democracy is as far advanced, if not further, as any of these countries. We’ve just signed up to defend from Russia, and then the NATO expanders will say that we always told you that is how the Russians are—but this is just wrong.”

Since then, both the second Bush and Obama Administrations have continued, despite repetitive misadventures, in the fantasy that America should run the world.

My book Democratic Capitalism: The Way to a World of Peace and Plenty was published in 2004. It began with an agenda for human progress that included these four R’s: Reaffirm Idealism, Refine Capitalism, Restructure Government, and Reposition Foreign Policy. To reposition foreign policy, I suggested that the global mission of the United States should be to promulgate economic freedom while recognizing that moral economic leadership and warrior-state geopolitics are mutually exclusive. Only a growing sense of worldwide economic common purpose can phase out reciprocal atrocities. All countries have the responsibility to use economic freedom to improve the lives of their people in ways consistent with their cultures and at their own chosen pace. By accepting this reality, the United States can become a strong team-player while purging its own imperfections.

The American economy continues to be dominated by Finance Capitalism with support from the government while foreign policy continues to be dominated by the chicken hawks of both Parties following their urge to run the world. The Information Age Revolution can make the 21st century the most prosperous and peaceful in human history but not until these two impediments are recognized and neutralized. The present momentum is unfortunately toward persistent high unemployment and fractious relations among the seven nations who already have the bomb, including India and Pakistan. A nuclear catastrophe is an increasing threat.

For further study please read Stephen F. Cohen: Soviet Fates and Lost Alternatives, chapter 7, my book Democratic Capitalism available from Amazon.. com. and web site www.democratic-capitalism.com

8. Jobs for everyone when these dots are connected

Updated on January 26, 2018

Jobs for everyone when these dots are connected

• 24 million working-age Americans jobless.
• Idle cash in corporate surplus over $ 2 trillion.
• Overdue infrastructure repair over $ 2 trillion.

Most of the 24 million would have jobs if corporate surplus cash were to be invested in growth and infrastructure repair.

The Administration brags that 288,000 jobs were created in June but full- time jobs declined 523,000. Economic growth dropped 2.9% in the first quarter of 2014. We are in the slowest recovery on record.

The recession was caused when the trader-speculators kept raising their bets by borrowing more money until the bubble--inevitably--popped. The market then switched from greed to fear from buying to selling.

For a quarter-century, shareholder capitalism “downsized” (read “fired”) to raise short-term profits, share price, and the value of options. Instead of investment in growth over two trillion dollars in cash ended up sitting idle in corporations. Some of it was wasted on stock buy backs to hype the stock price and value of options.

At one time, America led the world in the quality of roads, bridges and schools. Now bridges are falling down, the roads are full of holes, and school buildings badly need repair. Besides investment in job growth a massive repair effort would put people to work. Both growth investment and repairs would pay for themselves in time.

During the 1930’s depression, John Maynard Keynes argued that economic recovery required adding taxes to increase consumer spending. Recently the same argument grid-locked Congress. Adding taxes is not necessary if spare corporate cash is used. Taxes would actually be reduced by lower unemployment benefits and through additional income from more people working.

In 1776, Adam Smith proposed that free-market capitalism needs little from government except control of the speculators, “prodigals and projectors,” as he called them, from deflecting capital away from the job-growth economy.

In 1998, famous speculator George Soros warned that instabilities inherent in finance capitalism posed a great threat to society and required regulation. The Clinton administration ignored both warnings, deregulated finance capitalism, and caused the greatest deflection of capital away from job-growth in history.

The solution is simple—connect the dots!

7. Capitalist Alternatives

Updated on January 26, 2018

Thomas Piketty proposed in Capital that because the rate of return on capital exceeds the rate of economic growth, capitalism automatically generates inequalities which, in turn, undermine the values of democratic society. Piketty later argues that inequalities are not automatic in capitalism, but rather subject to economic and political changes.

Such study would identify two forms of capitalism competing for domination in the twenty-first century: “Stakeholder or democratic capitalism” is responsible to workers, owners, customers, suppliers and community. “Shareholder Capitalism” has responsibilities only to shareholders measured by the short-term price of the stock. This deflects capital away from the job-growth economy towards speculation and is almost total. Trading is now 99% of Wall Street activity, but capital investment in economic growth is less than 1%!

ERISA (Employee’s Retirement Insurance Security Act) was the law that made workers capitalists with trillions of dollars of pension funding. Owner motivation should have increased profits and spread wealth broadly. The political process, however, was dominated by Wall Street. Bob Rubin, Secretary of Treasury, and Alan Greenspan, Chair of the Federal Reserve, in the Clinton administration successfully led in deregulation of finance capitalism and prevented regulation of derivatives.

Excessive liquidity from the workers’ capital helped Wall Street over-leverage their bets with the risk going up until the housing/credit bubble popped. The political process that Piketty refers to, has not yet designed the government support necessary for democratic capitalism; instead, it has concentrated on putting Wall Street’s “Shareholder Capitalism” back together.

Wall Street dominates the economic process and uses the money to dominate the political process. This cycle has persisted from the beginning of the republic, but never before had it used trillions of dollars of workers’ capital. This obscene contradiction requires real reform. Will the citizens finally express their “will and wisdom,” as they must in a democratic society, or will the Wall Street lobby continue to dominate the political process?

6. Fair Distribution of Wealth

Updated on January 26, 2018

Thomas Piketty, professor at the university of Paris, proposed in his best selling book Capital that capitalism will generate unsustainable inequalities because the rate of return on capital will exceed the rate of growth of the economy. Piketty provided data from many countries about this alleged inherent weakness in capitalism but he did not explain why it was true.

The reason was deliberate action in Great Britain by finance capitalists supported by government. They were following the “Golden Rule: he who has the gold makes the rules.” Their mission was to purge the inflation effect of the Napoleonic Wars that had reduced the return on capital for the wealthy. To do this they slowed the economy by putting people out of work causing calamitous economic hardships.

A century later American bankers formed the Federal Reserve as the lender of last resort but with the same mission to prevent price inflation from hurting the capital return of the wealthy. For this purpose, they developed the Phillips Curve and later NAIRU (Non-Accelerating Inflation Rate of Unemployment) to identify how many people needed to be out of jobs to improve the return on capital.

Piketty’s capitalism tried to maximize profits by suppressing wages and benefits of the workers. The alternative maximized profits by giving the workers the opportunity to reach their potential. These alternatives are available for examination on our web site or in Ray Carey’s book Democratic Capitalism, The Way to a World of Peace and Plenty.

5. Piketty’s Lament

Updated on January 26, 2018

French professor Piketty ‘s new book Capital begins with this proposition:

When the rate of return on capital exceeds the rate of growth of income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the values on which democratic societies are based.

Ludwig von Mises explained how it was the government and finance capitalism that deliberately improved the return on capital by putting people out of work.

After the Napoleonic Wars, the United Kingdom chose to return to the pre-war gold parity of the pound and gave no thought to the idea of stabilizing the exchange ratio as it had developed on the market. Calamitous economic hardships resulted from this; they stirred social unrest and begot the rise of the anti-capitalistic agitation from which Engels and Marx drew their inspiration.

Piketty never mentions Mises nor Adam Smith’s warning to protect the free market from speculators (Smith called them prodigals and projectors) who would deflect capital away from the job-growth economy. The deflection is now almost total with 99% of Wall Street activity trading and less than 1% capital investment.

The amazing popularity of Pickett’s book demonstrates the prevailing anti-capitalist attitude, particularly in academia, with many delighted to find alleged flaws in capitalism. They should be required to read the whole book.

4. Give the Federal Reserve the Needed Tools

Updated on January 26, 2018

The continuing media impression is that the Federal Reserve Board manages the American economy. They do not. Their monetary tools include the amount and cost of money, not included are the fiscal tools of taxes and spending. Proper management of the economy requires coordinated use of both monetary and fiscal tools.

The Fed pumped trillions of dollars into the economic system most of which stayed in the banks. They took the interest rate to about zero with limited effect on economic growth and unemployment. The only sure effect was to minimize the pensioners' retirement income from bond investment and low-cost money for speculative leverage.

The recently retired Chairman of the Fed, Ben Bernanke, explained in his book that the reason that they did not do a better job adding economic growth and reducing unemployment was the lack of these necessary tools. His advice can be found on web site www.democratic-capitalism.com., online education Essay section # 4: "Give the Federal Reserve the Needed Tools."

3. Inequality of wealth

Updated on January 26, 2018

Inequality of wealth is getting great attention with the publication of Thomas Piketty's Capital. The book includes lengthy Jane Austen quotes but no examination of Adam Smith, particularly his warning to beware of the speculators, Prodigals and Projectors as he called them, who would deflect capital away from the job-growth economy. The deflection is almost total with Wall Street trading 99% and investment in economic growth 1%.

The following are quotes from wise people over the years on the subject of inequality:

In my studies, I learned that society has been warned throughout history about the harm to economic growth and social cohesion from concentrated wealth. Confucius understood the necessity for diffused economic power two and one-half millennia ago:

The centralization of wealth is the way to scatter the people, and letting it be scattered among them is the way to collect the people. They produce wealth, but do not keep it for their own gratification. Disliking idleness, they labor but not alone with a view to their own advantage. In this way, selfish schemes are repressed and find no way to arise; robbers, filchers, and rebellious traitors do not exist.

The 18th-century European Enlightenment added their wisdom to that of Confucius. Claude Adrien Helvétius (1715-1771), a wealthy man, wrote with special authority on the persistent impediment of concentrated wealth and its negative effect on social cohesion:

The almost universal unhappiness of men and nations arises from the imperfections of their laws, and the too unequal partition of their riches. There are in most kingdoms only two classes of citizens, one of which wants necessaries, while the other riots in superfluities. If the corruption of the people in power is never more manifest than in the ages of the greatest luxury, it is because in those ages the riches of a nation are collected into the smallest number of hands.

Benjamin Franklin (1706-1790), that Enlightenment man of America, actually proposed legal limits to concentrated wealth:

That an enormous Proportion of Property vested in a few Individuals is dangerous to the Rights, and destructive of the Common Happiness, of Mankind; and therefore every free State hath a Right by its Laws to discourage the Possession of such Property.

Condorcet denounced special privileges from the government to the few as the root cause of the concentration of wealth:

Wealth has a natural tendency to equality if the administration of the country did not afford some men ways of making their fortune that were closed to other citizens. We shall reveal other methods of ensuring equality, either by seeing that credit is no longer the exclusive privilege of great wealth or by making industrial progress and commercial activity more independent of the existence of great capitalists.

Condorcet correctly identified non-democratic privileges lobbied by, and given to, the few as the source of concentrated wealth, but his vision of broad wealth distribution was only a utopian ideal in the eighteenth century. The U.S. economy at the beginning of the twenty-first century, however, had begun to fulfill Condorcet’s prophecy: Wage earners had supplanted the “great capitalists” as a source of investment money. Unfortunately, this watershed event has yet to change the pattern of government privileges for the few to make more money on money. While the source of capital has been democratized, the rewards from capitalism have not yet been democratized.

2. NY Times Article with Charlie Munger and Warren Buffett

Updated on January 26, 2018

A recent NYT article (May 5th, 2014) featured Warren Buffett's 90 year old long-time partner, Charlie Munger. He was talking about the critical importance of trust at their famous annual meeting that attracts thousands.

Charlie wrote me ten years ago after receiving my book Democratic Capitalism, The Way to a World of Peace and Plenty. To my great surprise he wrote that he had stayed up all night to finish the book. Apparently the book's message about trust and cooperation in the right capitalism registered with him as it still does.

The book is now available on Kindle for less than a dollar. For those who say "nobody saw the economic crisis coming" read the book on the "Rise of Ultra-Capitalism." More importantly, the book provides action plans to counter the domination by finance capitalism but this real reform is still in the future.

1. An Agenda to Reform Capitalism

Updated on January 26, 2018

Economic recovery requires capital invested in the job-growth economy and kept away from the speculators. Impediments must be eliminated allowing democratic capitalism to spread on its economic and social logic. These proposed reforms are summarized below and examined in more detail in a series of articles under “Introduction,” in video interviews, and in the book, Democratic Capitalism: The Way to a World of Peace and Plenty..

• Tax-free dividends for wage earners will expand profit-sharing and ownership plans, rebuild retirement accounts, generate a “capital wage” to be spent or saved, and turn employees into active capitalists.

• Hundreds of billions of dollars of corporate surplus will be moved into the economy through both reinvestment in growth and distribution in dividends. Stock buy backs will be taxed.

• Wage earners will instruct their money managers to move retirement money out of “too big to fail” banks into small banks, credit unions, or direct investment.

• Congress will design a “Repair America Bond” that will redirect some of the $2.3 trillion of 401(k) money into $2 trillion for infrastructure repair.

• Wage earners will instruct their money managers to measure corporate performance not on quarterly earnings but rather on a three-year running average of sales, profits, and cash flow against managements’ predictions.

• Government must prevent recessions by fighting asset inflation with the same determination with which they fight price inflation. One agency should “control currency and credit for the general welfare,” not for the benefit of speculators. Tools include interest, reserve requirements, and various taxes.

 

 

 

 

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