Although elements of binary economics can be found elsewhere (e.g., Pope Leo XIII’s Rerum Novarum 1891; the Distributism of G.K. Chesterton and Hilaire Belloc; Harold Moulton (1935) The Formation of Capital; and Ibn Ashur (1946) Maqasid al Shari’ah al Islamiya), the first clear formulation of the subject was in 1958.
This was done by Louis Kelso (lawyer and economist, 1913-1991) and Mortimer Adler (the American Aristotelian philosopher, 1902-2001) in their unhappily titled, but momentous, book The Capitalist Manifesto (1958) which can be downloaded from www.kelsoinstitute.org The book’s title is a Cold War nomenclature in opposition to communism, but the book’s thinking can only be truly understood as being outside all left-wing and right-wing economics and politics – which is demonstrated by the attacks which were made.
Binary economics is outside both left-wing and right-wing paradigms
Thus, on the left, Soviet Pravda saw the book as “ramblings based on thinking along a dead end of history” – which was an egregious misstatement because communism was soon to collapse and binary economics is today increasingly seen as the most modern economics of all.
Meanwhile, on the right, Milton Friedman was nonplussed and could only conclude that binary economics must be “Marxism stood on its head”. Very obviously, extreme left saw binary economics as extreme right; and hard right saw it as extreme left.
And equally obviously, the puzzlement and confusion of Pravda and Friedman only serve to confirm that binary economics is outside both left-wing and right-wing paradigms.
Below is a (1987) video of Louis Kelso being interviewed by Harold Hudson Channer. Twenty three years on, this video is extraordinarily topical.
More ground-breaking books
Kelso and Adler (and, later, Patricia Hetter Kelso) were to continue to write ground-breaking books explaining how capital instruments provide an increasing percentage of the wealth and, crucially, how and why capital is narrowly owned in the modern industrial economy. Their analysis then has an important consequence easily understood by market theorists – if what increasingly produces a larger percentage of the wealth (productive capital) is narrowly owned, then a properly balanced economy (implementing Say’s Theorem (Law) that producers and consumers must be the same people) cannot come into being unless, on true free market and private property principles, productive capital becomes much more widely owned. This is at the heart of the binary claim to create an efficiency which creates justice and vice versa.
In the UK in 1976 Rodney Shakespeare and Wilf Proudfoot wrote The Two-Factor Nation.
Implementation of Say’s Theorem (Law)
Kelso and Hetter gave practical form to their thinking and proposed new binary share holdings which (with exception for research, maintenance and depreciation) would pay out their full capital earnings, be capable of being insured and, if loss occurred, would occasion no recourse to the new binary owners. Because of the full payout provision the binary holdings might well pay out more than five to nine times what is typically paid out today.
Thus what was being proposed was a new widespread capital ownership and associated individual incomes which can be possessed by anybody in the population irrespective of whether or not that person is in a conventional job or not. The practical result would be a balancing of balancing supply and demand – with producers and consumers being the same people – as required by Say’s Theorem (Law).
Meaning of ‘binary’
The ‘binary’ (in ‘binary economics’) sometimes perplexes people. It means ‘composed of two’ because it suffices to view the factors in production as being but two (labor and capital) and thus there are only two ways of genuinely earning a living – by labor and/or by the ownership of productive capital. In viewing the two factors it can also be observed that humans own their own labor but they do not necessarily own the other factor – capital. There is much helpful information at www.kelsoinstitute.org from which the text of The New Capitalists (Kelso & Adler, 1961) can be downloaded.
Employee Stock Ownership Plans (ESOPs)
Very often the first acquaintance people have with binary economics comes through today’s Employee Stock Ownership Plans (ESOPs). These stem originally from Louis Kelso & Patricia Hetter Kelso (1967) Two-Factor Theory: The Economics of Reality; the founding of Kelso & Company in 1970; and then from conversations in the early 1970s between Louis Kelso, Norman Kurland (Center for Economic and Social Justice), Jeff Gates (author The Ownership Solution), Dr Shann Turnbull of Australia, Senator Russell Long of Louisiana (Chairman, USA Senate Finance Committee, 1966 – 1981) and Senator Mike Gravel of Alaska.
Wide ownership in industry
There are about 11,500 ESOPs in the USA today covering 11 million employees. As binary economics predicts, studies have shown efficiency improvements as an effect of employee ownership and involvement – binary techniques for this are called Justice Based Management.
The binary ESOP is a capital credit device which institutionalizes the basic binary property right – the right for all individuals to acquire productive capital, to pay for it out of its pre-tax earnings, and then to receive its full payout income. The legal entity which acts for the employees and oversees the capital acquisition and distribution of profits, is the ESOP trust.
However, it is important to understand that (the original binary concept having been implemented for the purposes of the old paradigm rather than the new binary one) present ESOPs are not true binary ESOPs. Among other things, present ESOPs do not have full payout of earnings and do not make use of the key binary concept – the use of interest-free loans issued from the national bank and administered by the banking system (which may charge administration cost).
Other binary Plans
It should be noted that the ESOP is only one of several techniques – e.g., Individual Share Ownership Plan, Consumer Share Ownership Plan, General Share Ownership Plan, Mutual Share Ownership Plan – which can be used to broaden capital ownership but all the techniques have at their heart the use of central bank-issued interest-free loans for the creation and spreading of productive capacity. Without those loans the primary defect in the present ESOP legislation will remain in that it requires poor and working people to acquire capital primarily with the present earnings of labor rather than primarily with the future earnings of capital.
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