Binary Economics

Post-Scarcity Economics

There is an economic fault line running throughout the world which today’s economic gurus seem unable to explain or remedy: the widening wealth and income gap between a tiny rich elite and multitudes of poor in every country between and within developed and developing nations. With global communications, the global economy, and our global environment, we cannot help but feel the tremors inside and outside national borders. These growing economic imbalances have promoted bloody conflicts, widespread starvation, international crime and corruption, depletion of the planet’s non-replenishable resources, unconscionable destruction of the environment and systematic suppression of human potential and life-enhancing technology.

One post-scarcity visionary of the 20th Century, lawyer-economist Louis Kelso, understood the power of technology either to liberate or dehumanize people. Popularly known as the inventor of the employee stock ownership plan (ESOP), Kelso observed that modern capital tools and their phenomenal power to "do more with less" have offered people an escape from scarcity to shared abundance.

As a lawyer Kelso also saw that the design of our "invisible" institutional environment and social tools determines the quality of people’s relationship to technology. Such intangible things as our laws and financial systems determine which people will be included or excluded from sharing of access to equal economic opportunity, power and capital incomes.

Access to capital ownership, asserted Kelso, is as fundamental a human right as the right to the fruits of one’s labor. Kelso argued that the democratization of capital credit is the "social key" to universalizing access to future ownership of productive wealth, so that every person, as an owner, could eventually gain income independence through the profits from one’s capital.

Kelso’s Economics of Ownership and Justice

At the heart of what Kelso called "binary economics" is a simple but revolutionary proposition. Kelso stated that people could legitimately create economic value through two (thus binary) factors of production:

Labor (which Kelso defined as all forms of economic work by people, including manual, intellectual, creative, and entrepreneurial work, and so-called "human capital"), and

Capital (defined by Kelso as anything non-human contributing the production of marketable goods and services, including tools, machines, land, structures, systems, and patents).

Capital, in Kelsonian terms, does not merely "enhance" labor’s ability to produce economic goods. (It wasn’t Bill Gates’ labor that accounted for the increase in his wealth in one year’s time from $50 billion to $90 billion; his capital would have kept producing even if Bill Gates were in a coma.) According to Kelso, capital (increasingly the source of economic growth) should increasingly become the source of added property incomes for all.

Kelso based his ideal market system on the three basic principles of economic justice:


, the input principle. If both labor and capital are responsible for production, then equality of opportunity demands that the right to property (and access to the means of acquiring and possessing property) must, in justice, be extended to all.

Distribution, the out-take principle. Property rights require that income be distributed based on what one contributes to production—one’s labor, one’s capital, or both. Assuming that capital ownership is spread broadly, the free and open market under Kelso’s system becomes the most democratic and efficient means for determining just prices, just wages and just profits. Just profits in this case would be a just distribution of increases in productivity.

Harmony, the feedback principle (which some Kelsonians call the principle of "Limitation"). This principle restores balance between "participation" (input) and "distribution" (out-takes) and puts limits on monopolistic accumulations of capital and other abuses of property.

Kelsonian Macroeconomic Reforms

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Democratized access to money, capital credit and credit insurance would become instruments of inclusion, not exclusion, and the means for "procreative" financing of whatever capital the economy needs to move toward prosperous lives for all members of society. Kelso’s monetary, tax and other "Capital Homesteading" reforms would allow us to finance sustainable growth through techniques that offer more universal access to future ownership.

Kelsonian Microeconomic Reforms

Justice Based Management (JBM) was designed as a Kelsonian system for building and sustaining an ownership culture within the enterprise. Applying principles of economic justice, the philosophy of servant leadership and Kelsonian financing techniques, JBM will become the prevailing management system for the 21st century. JBM systematically anchors capital and builds ownership into successive generations of employees.

JBM also re-orients the operational and governance systems of today’s enterprises from the present top-down, risk-averse and conflict-prone patterns of the wage system, to a system of participatory ownership where risk, rewards and responsibilities are shared among many co-owners. JBM would enable all workers to be reconciled with the realities of global competition; supplemented by capital incomes, workers’ incomes would increasingly shift from automatic wage increases to more equitable sharing of bottom-line profits.

The role of the labor unions will also evolve as unions move from the economics of conflict to the economics of co-ownership. Unions will regain their original role as a democratic society’s most important institution for advancing economic justice by organizing all non-owners, not just workers, to help get them their fair share of the growing capital pie.

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