The New Institutionalism
Articulating a new individualism is the easy part of #fixingcapitalism. All it requires is to reject scarcity in favor of prosperity and to reject unfairness in favor of fairness. It may be emotionally or philosophically challenging for some people but not intellectually challenging. The institutional vision of New Capitalism is another matter. I’m going to make it as simple as I can but the truth is that this is a complicated subject. It’s also a little bit boring in spots but if you stick with me to the end I promise I will blow your mind with a new explanation of the trading relationship between the public and private sectors!
Under Neoliberalism, private institutions were viewed as vehicles for the expression of individual freedom. Public institutions, on the other hand, were viewed as vehicles for collective initiative. Because individual freedom was valued over collective initiative, public institutions were viewed unfavorably while private institutions were viewed favorably. It’s really not hard to understand at all which is what makes my job of marketing a superior, but much more complicated vision all the more difficult. But I have to try or else capitalism will die.
So here are the first five things you need to know about institutions.
1. Capitalism is a system of institutionalized value creation.
Institutions are how we produce value in capitalism. It doesn’t mean that all value is created by institutions. It means that we should seek institutional solutions to our value creation problems. If we find ourselves short of valuable goods and services we should always seek the solution in some change to some institution. The change may involve creating a new institution or eliminating an old one, or changing the policy of an existing institution. What we will never do, in contrast to Neoliberalism, is to throw up our hands and insist that individuals should change themselves, or worse, do without, in response to a shortage of something. Education and money are two good examples. If people want more education or money, then we should first ask which institutions create educations and monies. Then we should figure out what resources they need in order to produce more of them!
We should never tell people who desire an education that they have to reduce or otherwise alter their expectations because we are short of seats in our existing schools, or short of money to pay for those seats. Institutions exist to produce all of the things we need, so that individuals can enjoy glorious freedom, fairness and prosperity. Institutions are our value creation machines. If they fall short of that specification our response will always be to fix them until they do.
2. Institutions exist to create value for individuals.
It is almost clear from the above statement but not quite. There is no reason for institutions to exist other than to create value for individuals. Institutions are not living, breathing things. They have no way to benefit from the value creation process. Therefore, if we find that our institutions do not create value for individuals (or if they destroy value), we should get rid of those institutions. Institutions exist to create value for individuals and for no other reason.
3. In Capitalism institutions are owned entirely by individuals.
Institutions do not enjoy freedom. They do not own the value they create in the way that individuals do. They are not free to use that value however they like, as individuals are. Instead, the value stored within an institution actually lives on the balance sheets of the owners of that institution. It is possible for institutions to hold ownership claims over each other, but ultimately, all of the value is owned by individuals as financial wealth, even if the underlying real assets are controlled by some institution. If this sounds a little bit magical to you, that’s because it really, really is. It’s magical, but it’s real.
4. In Capitalism institutions are operated entirely by individuals.
The magic I am talking about is what allows ownership of an asset to be held on a separate balance sheet from control of that asset. The owner is the one whose balance sheet claims the value of the assets held by an institution. The operator is the one who controls those assets in an effort to create more value. The process of operating an institution by an individual is what we call work. It is important to understand that institutions don’t do anything on their own. Only individuals can perform work. Institutions are accounting objects. All of the value created by an institution is attributable to the work of some individual.
And no, robots, no matter how clever, will never change this because robots are either assets owned by some individual, or they are treated as individuals who perform work and receive property in exchange. They can never be both. If they are assets then whatever value they create is attributed to the producers and operators in the same way as for ordinary machinery and computer programs. It does not matter how productive the asset is. On the other hand if the robots are individuals then they must be treated as such and granted freedoms including property rights. In that case we can not force them to work for us or assume that they will, or consider them part of the “means of production.” If we do not respect their property rights then why should we expect them to respect ours?
5. Equities are the means through which individuals own their institutions.
Then there is the question of how we own our institutions. Financial assets provide the means of ownership. But the financial assets which convey ownership of institutions are not credit assets. They are certainly not debts. They are equities. I have a lot to say about the issue of equity versus credit but I will keep it really short here and say only a couple of things. Equity and credit are two of the most fundamental concepts in the financial universe and until you fully understand both you cannot possibly understand capitalism or money. The other thing I will say is that economists do not understand the concept of equity. Some economists partake in barter theories where real assets (commodities) are construed as money. They are challenged by the credit theorists whose ideas are encapsulated in the expression “All money is debt.” To the best of my knowledge I am the first person to try to win an audience for the idea that equity must be a separate type of thing from credit, and also that equity as opposed to credit could be the basis for a new way of conceptualizing “money” itself. For now what you need to know is that equities are the means through which all of our institutions are ultimately owned by individuals.
So far I have been discussing “institutions” in the abstract without ever distinguishing between public and private institutions; governments and corporations. What is the difference?
The difference is not in how they finance themselves. Corporations and governments can both use either equity or credit-based financing strategies (although Neoliberals and Socialists will not acknowledge the ability of the government to issue equity. In fact this is the reason for their misplaced demands for balanced budgets and the reason capitalism is currently failing so badly for so many people!)
It is not who owns the institutions. In capitalism, all of our institutions, public and private, must be owned by individuals. Otherwise who owns the assets? And how is it a system of individual ownership? I do not acknowledge collective ownership as a thing. The value of any given asset must apply to your balance sheet or mine, not both. Ownership can be distributed equally, by issuing one share to every individual, but it would still be individual ownership. It would still be fundamentally the same as the way individuals own corporations, even if the policy for distributing shares is different.
We could talk about some differences in terms who gets to decide who operates the institutions. In the case of corporations it is almost always the shareholders who make that decision. In the case of governments there are designated citizens who get to vote, and this is a different set from the shareholders. But this isn’t the most important distinction either.
The really important difference between corporations and governments is their role in trade. Corporations compete with corporations and governments compete with governments, but corporations and governments cooperate. This is in stark contrast to the Neoliberal view which holds that governments compete with corporations by outbidding them for labor, resulting in inevitable inflation or default, whether sooner or later. Nothing could be more mistaken. If this were true we would indeed be doomed. But I have good news. Corporations cooperate with their governments and compete with each other. Once you become willing to think of capitalism in this new way, a set of alternative possibilities will unfold.
So what does this cooperative trade look like? Explaining it in full will be the subject of something I am working on called The Robocube Monetics. But I promised to blow your mind with a quick outline right now so here it is.
The government stands ready to buy labor in exchange for new equity issues. Corporations agree to pay wages and sell products in exchange for the government-issued equities. All individuals enjoy the option of working for government, increasing its capital as equity is issued in exchange for the work. This leaves individuals with money on their balance sheets that can be saved, spent or invested.
If the money is spent it becomes revenue to a corporation, and the customer receives a valuable product or service in exchange. If invested, it becomes capital to the corporation and the investor receives either equity or credit issues of the corporation in exchange. In either case it may be used to pay wages which serve to transfer government equity holdings back to the individual sector.
The critical insight is that the private sector requires financial assets which are issued by government in order to operate. As the private sector expands, it requires an increasing supply of these assets at every step of the way. The resulting demand for government equity issues can be harnessed in order to fund a government which provides a foundation of free public services including things like roads, bridges, schools and the national defense. This foundation serves to reinforce and enhance the productive abilities of the private sector.
Anyway, I told you at the beginning it was a complicated subject. What you really need to know is that New Capitalism is a system of institutional value creation and individual ownership, as opposed to Neoliberalism where ownership of our most valuable and critical institutions (governments) was left undefined. And also, that New Capitalism is a framework which entails cooperation rather than competition between the public and private sector, whereas Neoliberalism imagined the public and private sectors to be in competition.
