Where the stimulus to investment is concerned, the system is somewhat in the lap of the gods. – Paul Samuelson
The great tragedy of the present economic crisis is that it is physically and technologically avoidable. The United States, and indeed the world, has more wealth and power at its disposal today than at any previous time in history. The world's stock of capital goods is larger than it has ever been. There exists more managerial expertise and a larger, more highly trained labor force than ever before. There are more machines, computers, scientific and technical knowledge available for creating wealth than has ever existed during the lifetime of the planet earth. We have the physical capacity to produce many more goods than are now produced at much lower prices than now exist. We have many more jobs that need doing than there are unemployed persons seeking work.
Few persons who experienced the dramatic events of the early 1940's would question that, if America were to mobilize for another major war, the present economic slump would end abruptly.1 People would be put to work; new factories would be built, old factories would be modernized and operated around the clock. Manufactured goods would pour off the assembly lines in such huge quantities that we would have to revitalize our railroads and modernize our shipping in order to transport it. World War II put a dramatic end to ten years of economic depression and stagnation. Workers prospered. Women, blacks, and the chronically unemployed were put to work. America made more progress against poverty between 1941 and 1945 than ever before or since, including the Kennedy years, the Eisenhower Administration, and the Johnson Great Society.2
Yet most of the goods that flowed out of those defense plants benefited no one. They were either consumed in the fighting or destroyed as soon as the war was over in order to prevent flooding the civilian market. This is a phenomenon that demands explanation. Is there any reason that building tanks and bombers makes workers more prosperous than building homes and subways? If workers prosper during wartime despite the fact that most of what they produce is destroyed, then certainly they should prosper even more if the fruits of their labors were distributed so as to benefit themselves and society. Clearly, if our industrial capacity were mobilized for the benefit of mankind in the way that we know it can be for war, the problems of poverty, pollution, and economic stagnation would cease to exist.
Why is it that, while hundreds of thousands of human beings are starving and hundreds of millions are living near the threshold of subsistence, we have factories sitting idle for thousands of hours every year, and millions of able-bodied, skilled workers are looking for jobs. There is something desperately wrong with the fundamental principles of an economic system that allows such overwhelming need to persist while unused capacity sits idle. Establishment economists have a hundred reasons for everything that taken together explain nothing. They can beat about the bush endlessly about interest rates, capital earnings, and depreciated rates of return, but they cannot answer the central economic question of the industrial era. Why can't we use what we have to produce what we need?
The simple fact is that most of the truly fantastic capacities of modern technology and industrial power have never been focused on the really important problems of hunger, pollution, and human suffering. We have wasted our resources on trivia and allowed the talents of millions to languish in underemployment while social problems of extraordinary magnitude consistently go unattended for lack of workers. We have the knowledge and the industrial capability to eliminate poverty from the spectrum of human problems. There are, in fact, no economic problems, including those resulting from the world's exploding population, that are beyond our present physical and technical capacity to solve.
What are lacking are the social and political institutions that can mobilize our capabilities and bring them to bear on the truly critical problem areas of our society. If we are to ever realize our true potential, we must somehow reorganize our system of rewards, incentives, and methods of wealth distribution so that they encourage individual behavior that is beneficial to society and societal behavior beneficial to the individual.
The Employee Society
The genius of free-market capitalism, at least in its early days, was, in the words of Adam Smith, that "every individual . . . by pursuing his own interest frequently promoted that of society more effectually than when he really intended to pro -mote it."3 This symbiosis between private and public interests that Adam Smith called an "Invisible Hand" has largely disappeared from the present economic system. Today our economy is a battle ground of competing pressure groups. Whatever economic justice exists derives from a tenuous balance of power. What is good for the individual seldom benefits the whole, and vice versa.
A first step in restoring symbiotic harmony to our economic system would be to make our institutions for capital financing and income distribution correspond more closely with reality. We claim to be a capitalist society; i.e., a society based on the concept that private ownership of wealth-producing capital is a legitimate source of personal income. Yet the overwhelming majority of Americans, even in the middle and upper-middle income brackets are simply employees, dependent from pay period to pay period on wage and salary checks for income. In actual fact, America is not a capitalist society at all; it is an employee society.
We are a nation of employees. We derive our income from what we do, not from what we own. We are not capitalists; we are wage earners and, in a very real sense, wage slaves.
There is no wonder that the work ethic is pervasive and that unemployment is a dark specter. There is no wonder that our economy is choked with make-work, featherbedding, mass advertising of trivia, and wasteful use of natural resources and human talent. This is the inevitable result of distributing most income through wages and salaries in an economy where most wealth is created by capital.
If we were really capitalists deriving the majority of our personal income from the ownership of capital, then the benefits of productivity increases would be distributed primarily through dividends instead of through wages and salaries. Industrial robots, automatic factories, and computerized offices would then be no threat to jobs. Increased efficiency would benefit everyone. Technological innovation would be simply a means for creating income, eliminating pollution, and providing the basis for the good life.
Clearly, such is not the case. Instead, we cling dogmatically to the work ethic and the labor theory of value despite the transparent fact that the overwhelming percentage of productivity increases are not attributable to labor at all. People do not work any harder now than they did a thousand years ago and they are not inherently any more intelligent. The productivity of the existing labor force today is due to modern equipment, improved knowledge, and more efficient process technology. The truth is that labor has become a relatively small and rapidly diminishing factor in the production of material wealth.
There is no doubt that the Puritan work ethic once served America well. Dedication to the principle that everyone should pull his own weight through hard work made it possible for a powerful industrial nation to rise from a primeval wilderness in less than four centuries. Likewise, the labor theory of value brought enormous benefits to the average worker. It provided the philosophical basis for organized labor's demands that the wealth created in America's factories and mills be distributed to the workers.
Unfortunately, cherished ideas cultivated over centuries live on long after they cease to be true or even useful. Human labor has long since ceased to be the most important ingredient in the industrial process; indeed, in many industries, human workers are the principal cause of production defects. Today, the first industrial revolution is complete. The labor theory of value and the work ethic are no longer useful concepts, and in fact may now constitute the most important impediment to the implementation of technological advances that could eliminate both poverty and pollution, not only in the United States but throughout the entire world.
We are at the beginning of an age of robots and automatic factories. If we could admit to ourselves the reality that machines can run industries just as well, if not better than, people, then we could devise an income-distribution system based on something other than employment. We would then have a society where machines provide the fundamental economic base and people are free to develop their creative talents to the fullest.
It must be emphasized, however, that there will always be some necessary work requiring human effort even in the most automated society. Medical care, teaching, counseling, entertainment, and personal services can never be satisfactorily automated in their entirety. Furthermore, there will probably always be large numbers of people who receive great satisfaction from regular employment. Certainly many will continue to desire opportunities for achievement and recognition offered by the competition of career employment. Thus, the distribution of some income through wages and salaries will continue to be necessary and desirable even when most goods and services are produced by automatic factories and robots.
Nevertheless, it is quite possible to have a hybrid economic system where a basic minimum income would accrue to everyone out of the profits from automatic industries while, at the same time, those who wished to work could supplement their basic income with a salary. There is no reason that wages and salaries should not coexist nicely with public dividends from automatic industries in an income-distribution system of the future. How could such a system be practical? What new institutions would be necessary to implement the distribution of income through public dividends? The mechanisms outlined in the following paragraphs are one possible approach to how such a system could be organized within the framework of our present constitutional government and free-enterprise economy.
The National Mutual Fund
A semiprivate investment corporation, the National Mutual Fund (NMF), could be formed. Like any mutual fund, the NMF would earn a profit by investing money in stocks. The NMF, however, would differ from an ordinary mutual fund in four important respects.
First of all, it would be inclusive of the entire adult population. Every citizen would be a shareholder by virtue of his or her citizenship.
Second, the NMF would not obtain its investment funds directly from its shareholders, but instead it would borrow the necessary investment capital from the Federal Reserve Bank. Each year the NMF would be authorized by an act of Congress to borrow a specified amount for its investment operations.
Third, the NMF would concentrate its investments in areas of long-term productivity growth. It would attempt to promote the diffusion of advanced technology into civilian industries so as to achieve the most efficient use of resources possible. The NMF would finance the modernization of technically backward industries and the building of new automated factories. It would provide supplemental worker's compensation and retraining incentives where these would be necessary or useful in accomplishing its goals.
Fourth, the NMF would distribute the profits from its investments directly to the public on a biweekly basis. Every person, upon reaching the age of 18 years, would begin receiving regular NMF dividend checks and would continue to do so for life. NMF profits would represent wealth created by public capital invested in private firms that owe most of their productivity to the technological knowledge and cultural organization existing in the nation as a whole. As such, these dividends would belong to no single individual or exclusive group of individuals. They would properly belong to everyone and therefore should be distributed equally. The only exception would be that payments would not be made to minors so as to prevent generating new incentives for large families.
The amount of NMF dividend checks would depend entirely on the profits developed by NMF investments. If these profits increased, public dividends would also increase. If NMF profits declined, so would public dividends. The NMF would thus make every citizen a capitalist.
The Amount of NMF Investment
It is suggested that the National Mutual Fund be begun on a very modest scale, perhaps with a limit on borrowing authority for the first year of $10 million, rising to $30 million the second year, and $100 million in the third year of operation. These first three years would constitute a trial period during which a staff could be recruited and policies and procedures could be evaluated and formalized. Following this initial test period, legislative authority for NMF borrowing would be roughly tripled every year for about ten years, or until the in-vestment rate for the NMF approximately equaled the gross private investment rate for the entire nation.
During the 1968-70 period, the gross investment rate in the United States was approximately 18 percent of the GNP, or about $180 billion per year. This was quite low in comparison with other industrialized nations. For example, West Germany invested about 27 percent of its GNP and Japan invested 39 percent, or roughly twice the United States investment rate during the same period.5 Additional investment by the NMF equal to the private investment rate would simply double the total investment rate. This is certainly not an excessive increase, particularly in light of the current performance of the United States economy relative to the other industrialized nations of the world.
Figure VI-1. The gross investment rate of the United States is the lowest of the nine countries listed in this chart. Unfortunately, this is not an aberration but represents a trend that has been going on since 1950. Information in this chart is taken from reference VI-5.
There are many indications that increased availability of investment capital would be highly beneficial to the American economy. There is presently a severe shortage of funds for long-term investment. James Needham, President of the New York Stock Exchange, estimates that over the next decade the need for investment capital will exceed the supply by $650 billion.6 Chase economists estimate the shortfall at $1.5 trillion for the same period .7 If these predictions are even close to being accurate, United States industry will be in desperate need of additional sources of investment capital for many years to come.
A shortage of investment capital, particularly when coupled with inflation and high interest rates, has a ruinous effect on long-term productivity growth. Firms tend to concentrate almost entirely on short-term quick-payback investments.8 These are typically limited to superficial innovations such as style changes and marketing gimmicks. Long-term investments that produce fundamental productivity gains simply are not good business when interest rates are high and stockholders are demanding large end-of-year return-on-investment figures.
The NMF would provide an ideal mechanism for creating the required additional long-term capital. The broad scope of the NMF, both in its investment activities and in its commitment to the financial security of stockholders comprising the entire population, would tend to give it a long-term perspective. Quick payoff investments would be much less appealing to the NMF than fundamental improvements in basic technology for the long-term benefit to the entire nation.
An important feature of solving the capital shortage through the NMF is that it would tend to decrease, rather than increase, the existing concentration of economic power in the hands of a tiny minority. Equity financing through the NMF would avoid the immense political difficulties inherent in more traditional methods of raising investment capital, such as cutting corporate income taxes or granting capital gains benefits to big investors at the expense of the average taxpayer.
Of course, the creation of investment capital through NMF borrowing from the Federal Reserve System raises serious problems concerning inflation. A method for increasing savings by a sufficient amount to compensate for this increase in the money supply will be discussed in a later chapter.
NMF Dividends
If the NMF were instituted in 1976, the gross investment rate would double by about 1989. As a result, the rate of growth in productivity, and hence real GNP, would substantially increase. Data from Figure IV-4 suggests that doubling the in-vestment rate would raise productivity growth to approximately 10 percent per year. If this were to occur by 1989, real GNP by the year 2001 would be about 4.9 times its 1976 level, and National Mutual Fund investment would total $10.4 trillion 1975 dollars.
It is estimated that the NMF could expect to pay at least 13-percent return on invested capital. This is based on the fact that the marginal return on capital for all business in America has not fallen below 16 percent since 1943. Total return on capital has remained above 25 percent during the same period.9
Even so, it might be argued that 13 percent is overly optimistic since real return on ordinary stock investments over the 1947 - 1965 period was only about 11 percent, and has averaged considerably less since 1965.10 However, these returns were realized in an economy where the investment rate was low and real economic growth was approximately 3 percent per year. In an economy where real growth was 10 percent, stocks could be expected to return considerably higher dividends. Thus, 13 percent does not seem an unreasonable expectation.
If present population trends continue, 13% return on investment would produce NMF public dividends in the year. 2000 of about $6000 per person per year in constant 1975 dollars. To some, this may seem a rather modest amount of income, especially if it would not occur until 25 years after the NMF was instituted. However, there are several factors that would make this amount very significant indeed. First, NMF public dividends would be completely independent of all other sources of income such as wages and salaries or social security. Thus, each family with two adults would receive NMF income in the amount of $12,000 per year over and above all wages and salaries otherwise earned. Secondly, the estimate of $6000 per person by the year 2000 is quite possibly conservative. If NMF investments were used to finance major advances in computer-aided manufacturing, it seems quite possible that higher rates of return might be realized. In any case, the year 2000 could be considered just the starting point for the full-scale operation of the NMF as a major source of independent income. An additional fifteen years could easily quadruple public dividends.
The Political Power of the NMF
Any institution such as the National Mutual Fund with discretionary authority over hundreds of billions of dollars of investment capital would wield enormous economic and political power. Its policy decisions would influence the structure of the entire socio-economic system and affect the lives and fortunes of millions of families. Such decisions would, by definition, be political in nature. Such a powerful institution would be extremely dangerous unless it were subject to effective checks and balances by other equally powerful institutions. It is thus imperative that the administration of the NMF be subject to the political process.
The National Mutual Fund would be administered by a publicly elected Board of Directors consisting of nine persons. Each director would be elected to an eight-year term and these terms would be staggered so that two directors would stand for election every two years, except for the eighth year when three directors would be elected. This arrangement would give the public an opportunity to express an opinion on NMF policy every two years, yet eight-year terms would give each director ample time to execute long-term policy decisions before standing for re-election. Five directors might be elected by regions of the country (i.e., the Northeast, the Southeast, the Midwest, the Southwest, and the Northwest), while the remaining four would be elected at large.
A Better Selection Process
Unfortunately, as was demonstrated by the Watergate scandal, public elections do not necessarily result in the selection of persons of integrity. It is therefore crucial that additional measures be devised to assure that only the best qualified persons are selected as NMF directors and that, after selection, their power be adequately circumscribed by effective checks and balances.
The recently implemented provisions of the 25th Amendment to the Constitution suggest a possible process for electing NMF Directors that would almost certainly be less subject to abuse than more traditional methods. The Congressional hearings pursuant to the confirmation of two Vice-Presidents demonstrated a commendable ability of legislative investigators to lay before the public the qualifications, philosophical beliefs, and susceptibility to conflict of interest of candidates for high office.
It is therefore suggested that for each vacant position on the NMF Board of Directors the President of the United States nominate a single candidate. These candidates would then be subjected to investigation by a committee of the Congress. That committee would have the authority to take testimony under oath, to subpoena witnesses and evidence, and to conduct a thorough public inquiry into each candidate's credentials. At the completion of these proceedings, the public would vote for or against confirmation.
This procedure would completely eliminate the frantic campaigning and vacuous sloganeering that is so costly and sheds little light on the real issues. Each candidate would be subject to in-depth questioning by friendly, as well as hostile, interrogators. There would be a thorough but legally bounded investigation of each candidate's background and qualifications, and the public would have the information it needed to make its decision. Equally important, the voters would not be presented with a choice between two undesirable candidates. After hearing the evidence, the voters would either confirm or reject each candidate. If a candidate is rejected, that position would remain vacant until another candidate could be nominated and processed through the confirmation proceedings.
Additional Checks and Balances
Even after a candidate had been confirmed, a bad choice would not be irrevocable. Each year the NMF would need to obtain legislative authority for its investment borrowing. This would mean that NMF policy would be the subject of public hearings on an annual basis. Businesses or consumer groups that disagreed with NMF policy would have ample opportunity to express their positions at those hearings. The Congress would, of course, have the authority to pass legislative regulations to assure that NMF policy was always directed towards the long-term public good.
Since the biweekly income of every adult citizen in the country would depend intimately on the efficiency and integrity of the NMF, there would be a sustained high degree of public interest in its day-to-day operations. NMF records would be open to the public and subject to scrutiny by the press. It is thus difficult to imagine how abuses of the NMF could continue uncorrected for long.
Nevertheless, if it were deemed necessary to further limit the power of the NMF, the National Mutual Fund could be established as a loose confederation of regional mutual funds whose investment activities would be independent and, to some extent, in competition with each other. Dividends paid to the public would reflect the combined total of the profits from all of the regional mutual funds. The advantage of this arrangement would be that no single investment philosophy would become dominant over all others, and businesses could shop around for favorable terms on investment capital. The increased complexity of public elections and annual hearings for an
NMF with several independent branches might be a small price to pay for the benefits of increased diversity and separation of powers.
In any case, the monopoly power of the NMF would always be limited by virtue of the fact that it would under no circumstances be allowed to exceed private investment spending. This would prevent the NMF from ever becoming the sole owner of a majority of the nation's productive capacity. The NMF should, in fact, not be allowed to financially control more than a small fraction of the nation's firms. This might be regulated by requiring that no more than 20 percent by value of NMF stock holdings could be in firms in which it owned a controlling interest.
It is felt that these restrictions and checks and balances would be more than adequate to assure that the NMF would not abuse the power vested in it by the public.
The NMF and Free Enterprise
It must be emphasized that, although NMF Directors would be elected officials, the National Mutual Fund would not be a branch of government; neither would its investment holdings constitute nationalization of private industry or the institution of socialism by any presently accepted definition of that term. The NMF would be a profit-making business institution operated for the primary purpose of earning dividends for its stockholders. It would not involve the expenditure of any tax money whatsoever.
Also, the National Mutual Fund would not be a replacement for any existing economic institution or policy. It would instead be a supplemental organization operating in addition to all the presently functioning institutions and organizations making up the existing economic system. For example, the NMF would not replace any of the methods presently used for capital financing. It would merely create an important additional pool of investment capital over and above presently available sources. Specifically, the institution of the NMF would not replace the existing stock market. In fact, during its early years of operation, the NMF would affect the stock market little more than any other large institutional investor. However, as the legislative authority for NMF borrowing from the Federal Reserve Bank was increased, the NMF might tend to dominate Wall Street unless it were prohibited from buying and selling on the open market. The NMF might therefore be restricted exclusively to purchases of new stock issues made by companies in need of investment capital. NMF sales, if any, would be made solely to the companies that had originally issued stock to the NMF. The result would be that NMF operations would have only a secondary effect on the existing stock market.
In a similar way, the NMV would not in any way destroy the profit motive or dilute the requirement for efficiency imposed by a market economy. In fact, the distribution of NMF profits to the public would actually increase incentives for businesses to weed out sloppy management and poor service. The NMF Directors would effectively be proxy stockholders in businesses financed by stock sales to the NMF. They would participate in the election of corporate boards and would exert considerable influence over the operational philosophy of client businesses. The NMF board would thereby be in a strong position to insist on efficient business practices, and, if for any reason they were not effective in this endeavor, they would be subject to public censure at the ballot box.
This is a situation that is vastly different from that existing in socialist economies where state-owned and operated businesses have few incentives to be efficient or to provide convenient services. In socialist economies, the public has little control over industry either through market pressures or through executive policy decisions. The NMF, in contrast, would increase the power of the public in influencing businesses and industries both in the market place and in the boardroom. NMF controlled industries would be more responsive to the public interest than industries under socialist systems because of the need to win consumer approval in the market place so as to return a large profit. They would at the same time be more responsive to the public interest than ordinary industries in our present capitalist system because of the need to respond to public sentiment reflected through elected members of the NMF board. Thus, industries financed by NMF capital would have double incentives to be both efficient and responsive. The NMF would not convert private industries into public, but would merely broaden the ownership of private industries so as to make the interests of private industry more synonymous with the public interest and vice versa. In short, the NMF would not be a step toward socialism, but rather a broadening of private enterprise capitalism to include everyone. The result would be a healthy tension between the need to return a profit and the need to protect the public interest in all other areas, such as preserving the ecology and conserving natural resources.
The importance of the profit motive in the operation of the NMF can scarcely be over-emphasized. The fact that the NMF would be a no-nonsense profit-making institution would not only provide strong incentives for businesses to operate efficiently, but it would also force them to utilize NMF-provided capital in the most effective way. In order to ensure the efficient use of NMF capital, stock bought by the NMF might carry certain obligations not common to ordinary stock sold on the open market. For example, companies selling stock to the NMF might be required to pay dividends at some fixed rate to be agreed upon by negotiation between the NMF and the company, on all profits resulting from NMF-financed investments. This rate agreement would be the result of negotiations in which the NMF governors, representing a profit-making institution with profit-minded stockholders (the public), would attempt to set the rate as high as would be profitable in the long run for its stockholders. Therefore, the NMF would force the asking rate for investment capital to the maximum value beneficial to its stockholding public. This, of course, would increase the cost of NMF capital sufficiently to assure that those businesses obtaining NMF financing would put it to the most profitable use.
Businesses would not be forced to accept NMF terms for financing. The traditional sources of capital (i.e., the private stock market, commercial banks, retained earnings, and various other sources of private financing) would still be available. The NMF would thus be subject to the restraints of competition in a free market. If the NMF governors were to demand too high a return on capital provided by the NMF, businesses would simply seek capital from other sources. If, however, the NMF Board of Directors were to be too generous with the funds it dispersed through stock purchases, then its stockholders, the public, would replace those directors with other directors more conscious of the public's desire for high dividend payments. The fact that the NMF stockholders would include the entire adult population and not merely some subset of the population would create a strong motivation for the NMF to pursue policies generally beneficial to the entire country, including the private business sector, and not merely to promote the welfare of another special interest group. Any conflict that might develop between the NMF and private industry would essentially be a conflict between private industry and the people of the nation. In such a case, there is little need to worry about the interest of the majority being subverted. The need is rather to protect the individual (in this case, the individual businessman or corporation) from tyranny of the majority. This, of course, is the proper function of the law, the courts, and finally the Constitution. The NMF and its directors would be subject to regulation by laws passed by both federal and state legislatures, as well as to regulatory action by the Executive Branch and judicial restraint by the courts. Thus, the NMF would not, indeed could not, go beyond the will of the final source of power and restraint — the people themselves. The people would have direct control over the NMF through the electoral process as well as indirect control through various legislative, executive, and judicial authorities. The ultimate power of the NMF would, of course, lie in its access to funds borrowed from the Federal Reserve Bank. The authority to borrow from this source would rest with the Congress and President.
Incentives for Diversity
The NMF would not put the private enterprise system under a monolithic system of government control. In fact, the existence of NMF financing would actually increase diversity and competition within the private sector and, in the process, would provide a powerful counter force against the present trend toward concentration of economic power in the hands of a few enormous corporations. The present practice in American business of financing most capital investment through retained cash earnings gives large, established corporations an enormous competitive advantage over smaller firms. Furthermore, the use of retained earnings as collateral for obtaining preferred credit ratings enables large corporations to operate with flexible financial reserves that simply can not be matched by smaller firms. The existence of NMF financing would, to some extent, reduce the advantage of simply being big. The NMF would be a ready source of investment capital equally available to small firms as well as large. NMF financing thus would act as an equalizer, enabling small businesses to operate with more .of the flexibility presently enjoyed only by large corporations with huge financial reserves.
The availability of the NMF as a source of investment capital might also make it feasible to consider major tax reforms with respect to corporate profits and capital gains. Tax laws might be changed to encourage corporations to pay out more of their profits as dividends to stockholders rather than retaining them for investment purposes. If there were sufficient incentive for industries to finance most of their capital investments from external sources such as new stock issues, either on the private market or to the NMF, then all industries, big as well as small, would have a more equal opportunity to survive and prosper in a free-market economy. The effect of the NMF in decreasing the advantage of simply being big might have a greater effect in promoting competition and discouraging conglomerate mergers than all of the antitrust legislation and court litigation that the federal government could conceivably bring to bear. Furthermore, the antitrust anti-conglomerate effects of the NMF would be much less subject to corruption and political abuse than the present system of regulation by law. The NMF would combat the trend toward mergers by removing the economic incentives for bigness rather than by attempting to prevent by law what is now financially attractive for big companies to do.
The NMF, however, would not especially favor small businesses over large. The effect of the NMF would simply be to put all firms, big as well as small, on a more equal financial footing. The benefit in the long run would be neither to the biggest nor to the smallest, but to the most efficient and productive.
The fact that the NMF directors would be under considerable pressure to deliver high dividends to the stockholders would tend to cause NMF investments to be concentrated in industries where investment could be expected to earn high profits over the long run. NMF financing would thus be a powerful force for inducing all industries, big as well as small, to modernize their plants and production techniques. It would encourage innovation by two methods: first, by providing risk capital for promising new technologies, and second, by pursuing successful new developments with massive financing for rapid modernization of entire industries. The NMF would very likely invest in completely automatic factories, mines, and mills, that would result in enormous savings in labor costs. Income would not be lost to workers, but would instead be distributed through NMF public dividends rather than through wages.
In certain cases, the NMF directors might deem it necessary to finance supplemental worker retraining and/or compensation programs in order to make possible the introduction of major technological innovations affecting existing jobs. Such measures would be at the discretion of the NMF directors and would be set up through negotiations between the NMF, the companies, and the workers involved in each individual case. The use of such measures might make it possible to revolutionize entire industries such as the home construction industry so as to reduce the cost and improve the quality of newly constructed houses. Mass transit equipment and facilities might be made financially profitable and produced on a massive scale. New energy sources might be developed and exploited. Major new environmental protection industries might be started.
In summary, the profit motive working through the NMF would cause it to pursue policies that would be beneficial to the free enterprise system in many different ways. The NMF would encourage efficient management and effective performance in the market place. It would provide a readily available source of capital for investment purposes and would force the most efficient utilization of that capital. It would enhance competition between small and large industries and would foster extensive utilization of the most modern and efficient technological innovations. The net effect of the National Mutual Fund would thus be the revitalization of free-enterprise capitalism by making it work for the benefit of all in a post-industrial world.