Review of the Book:

The $30,000 Solution
by Robert R. Schutz, Ph.D.

Edward J. Dodson

[A review of The $30,000 Solution, written by Robert R. Schutz, Ph.D.,
published by Fithian Press, 1995; reviewed June 1996]

Robert Schutz, managing editor of EarthLight Magazine, asks us to follow along as he describes how the world might be a very different, improved, place if only we united in support of the public policies he advances. "This book is the result of forty years' observation of and reflection on the economic system," he begins. What he observed is that the socio-political arrangements and institutions of the United States (and virtually every other country) nurture privilege and make possible a heavy concentration of wealth and income in the hands of a few. Roughly calculated, Schutz forecasts that ending privilege would make possible the distribution of some $30,000 annually to every person as a citizen's dividend from forms of "unearned income" that include "interest, rent, capital gains, dividends, gambling and lottery winnings, the rewards of crime and embezzlement, gifts, [and] inheritance.

An important source of inspiration to Schutz is the late nineteenth century writing of Henry George, who relentlessly attacked monopolistic privilege and land monopoly in particular. As an activist seeking broad support for his program, Schutz concludes that although George's "sight was keen" he was "too riveted on land to do us complete justice." To overcome this shortcoming, Schutz asks us to agree to distinctions between earned and unearned income even more difficult to defend than George's charge that "rent" (defined in modern terms as the potential annual legal tender value for access to locations, natural resource lands, rights of way, the airwaves and the broadcast spectrum) was a claim on wealth belonging to all citizens equally. My own years of studying political economy (including the writings of Henry George), caused me to wish Schutz had not lumped gains from the sale of land titles in with actual gains on the sale of capital goods. Gains on the sale of capital goods are quite rare, inasmuch as buildings and equipment require constant input of labor and additional capital goods just to maintain their economic and functional utility. If society ever does collect anything close to the full rent of land (i.e., of nature), titles to land will carry very low and in many cases no sales price.

Schutz devotes some effort to explain how the economic game currently operates, and he offers the reader not really interested in justice a plan for accumulating personal wealth. Invest in real estate, ride the upward tide of inflation, then put one's assets in a trust set up to avoid taxes. Be careful, however; many more have lost everything than have played the game and won. History does support Schutz to the extent that the price of land has climbed farther and faster than other prices. Hoarding land is a particularly good way to protect your purchasing power, particularly if you acquired it long before highways and development arrived to drive up value, or you are well enough connected to know where public funds are going to be spent on airports and other large-scale infrastructure projects.

In his analysis of our current economic system, Schutz attempts to respond to those who would defend profits as the legitimate reward for risk. The argument he should have made is that profits gained by the reinvestment of unearned income adds injustice on top of injustice. Once the laws of society recognize that up to this point in time most vast fortunes have been so accumulated, remedial measures (such as an annual wealth tax on personal assets over some value) can be adopted. Condemning profits, per se, or the charging another party fees for the temporary use of one's accumulated legal tender reserves (what we commonly call "interest") ignores the fact that true market transactions are win/win and involve no coercion -- systemic or otherwise. Unfortunately, markets are burdened by the heavy hand of coercion, in the form of agrarian and industrial landlordism -- ancient and modern monopolies combined within the structure of the international corporation and oligarchical families that dominate many countries.

Under the plan advanced by Schutz, every citizen would have a guaranteed income -- of around $30,000 in the United States. Although I do find fault with his categorization of income above certain levels as virtually always unearned, the basis for distributing income that is societally-created is consistent with just principles. Another avenue that might be pursued is to exempt wages and savings from taxation until a person has built up a storehouse of personal wealth equal to at least two or three years of income determined to be required to secure the goods (i.e., food, clothing, shelter, education, medical care and leisure) for a decent human existence. This could be combined with a further exemption of the first $30,000 of income (regardless of source and including any citizen dividend received), with a tax rates gradually increased on additional income. I would add that to the extent the full rent fund is collected, the need to impose taxes on production and commerce can expected to diminish.

Schutz next brings our attention to the system of legal tender creation and banking that has been the source of so many of our economic, social and political problems. He rightly offers the cooperative as a model that displaces that of the corporation, owned by stockholders who have little or no concern for the needs of employees or customers. Still, the real problem is not the corporate form of ownership or even the highly volatile markets for stocks, bonds and other types of securities. The last time the global economy had reasonably sound money was during the early sixteenth century and the first decades of the Bank of Amsterdam. To the extent the Bank loaned money, it transferred its own gold and silver coinage to others (or issued bank notes fully secured by coinage held on deposit). When the Bank directors began to issue notes in excess of its own assets, they essentially committed a fraud that has continued unabated to this day. We added an additional step to the fraud in the United States by declaring as legal tender the bank notes issued by the Federal Reserve Banks in exchange for government securities issued by the U.S. Treasury Department. Few people really understand the fraud perpetrated on the citizenry by this system. A paper bank note issued by the Bank of Amsterdam was a promise to pay the holder a specific quantity of precious metals; a Federal Reserve Note no longer promises to pay anything. If the Federal Reserve Bank holds the government securities, it receives Federal Reserve Notes back as interest (which the government obtains by taxation, user fees or other borrowing). If the Federal Reserve Bank auctions off the government securities, the transaction is viewed as pretty much of a wash in terms of its effect on the supply of legal tender in circulation. Anyone interested in how this shell game got started can read Carroll Quigley's classic work, Tragedy & Hope: A History of the World in Our Time (1966).

Another of the recommendations made by Schutz is to require banks to distribute 90 percent of their annual profits to shareholders. His reasoning for doing so is so that corporate managers will have to go to shareholders to raise more financial resources when they plan expansions, and in the process require them to think these decisions through more thoroughly than history indicates has been the case up to now. In our present "boom-to-bust" style of economy, I like the idea of companies having some assets relatively liquid for rainy days. As we approach economic nirvana - full employment without inflation -- the idea takes on a new and more wholly constructive character.

Our national debt, now well beyond the $5 trillion mark, is another concern he approaches, although he concentrates only on the falling interest costs that his proposals would generate rather than a systematic method of retiring the national debt. A simple, but effective means of doing so would be to replace existing government bonds (as they mature) with fully amortizing bonds (hopefully with the very low rates of interest Schutz forecasts). If and when government revenue exceeds what is necessary to provide for current expenditures, then the surplus could be used to call and retire these bonds ahead of time.

Schutz suggests that we 'tighten the rules on deductions" that businesses take for expenses. Why not eliminate deductions for expenses altogether and replace the business profits tax with a tax on gross revenue. This would not only put all businesses on an equal footing, the most productive would be rewarded with lower effective tax rates The rate of taxation ought to be sufficiently low as to not damage a company's ability to be competitive with companies domiciled outside the United States.

There are a number of other proposals made by Schutz that would be of concern to those who believe government, particularly national governments, are already the strong arm of privilege and entrenched power. Many people have very little hope that "world government" could ever be truly democratic or protect human rights. And yet, my own libertarian principles soften when I think seriously about how to protect our ecosystem from continued abuse and destruction or about the stresses our species places on the survival of other forms of life on earth. His specific proposals for dealing with these problems establish, if not solutions, the basis for constructive dialogue.