Monday, March 03, 2008

Binary Economics with Professor Robert Ashford

If anyone deserves a Nobel Prize for Economics, Robert Ashford and Rodney Shakespeare do for their original, scholarly and persuasive case in support of the late Louis Kelso's binary theory of economics. Many other writers on "worker ownership," "broad-based capital ownership," and "participatory economics" have trivialized and marginalized Kelso as "the inventor of the ESOP" and as merely another advocate of "the ownership solution" to the flaws of global capitalism. (One notable exception is William Greider, who gives an undistorted description of Kelso's paradigm in his 1997 best-seller ONE WORLD, READY OR NOT: THE MANIC LOGIC OF GLOBAL CAPITALISM.)

Ashford and Shakespeare should be congratulated for recognizing Louis Kelso as a major contributor to economic theory and the architect of a unified system of economics. Kelso's system, first articulated in his 1958 classic THE CAPITALIST MANIFESTO co-authored with philosopher Mortimer Adler, combines the elegance of classical market theory and moral philosophy with the highest spiritual values. Ashford and Shakespeare pinpoint where Adam Smith, Karl Marx, and John Maynard Keynes fell short theoretically by not recognizing the increasing productiveness of capital as the main source of economic growth and the most logical source of widespread income distribution. This conceptual omission is embedded in all conventional schools of economic thought, from left to right. Consequently, few economic theorists can ever make accurate predictions about the future or offer sound long-range solutions to meet the dangers of economic globalization.

Binary economics states that in a genuinely free market economy, people should be able to contribute to and gain their incomes from the economic process, based on both their labor and their capital inputs. Most neo-classical and Keynesian economists would dismiss this postulate as absurd, asserting that capitalism already operates this way. Louis Kelso and the authors of BINARY ECONOMICS, however, show that institutional barriers to broad-based ownership limit most people to earning their incomes through their labor alone. Consequently the market system breaks down, as government is forced to interfere with the market mechanism and redistribute incomes to non-owning working people and the unemployed.

The authors explain why neither Wall Street capitalism nor the many versions of socialism can ever achieve economic or social justice. Ashford and Shakespeare argue that so-called "free market" policies alone cannot achieve sustainable growth, and explain why the wealth gap continues to widen dangerously between nations and between the rich and poor within all nations. They point to a system beyond capitalism and socialism that provides every person, as a fundamental right of citizenship, with equal access to capital credit and other "social goods" needed to become owners of capital. Their new paradigm provides:

--a new understanding of the relationship between humans and things as they work together to produce goods and services;

--a new explanation for industrial growth, poverty and affluence; and

--a new strategy for achieving general affluence for all people on free market principles.

Few people would disagree with the authors that the so-called "free market" would be better termed the "un-free market." As they point out, a free and open market cannot work efficiently or justly under conditions where (1) workers have only their labor to sell in a free global marketplace, (2) ownership of productive capital globally is concentrated into the hands of a small ownership class, (3) the productive efforts and labor incomes of propertyless workers remain threatened globally by labor-displacing technology and by workers willing to accept lower wages, and (4) exclusionary barriers to more equal ownership opportunities remain in our laws and institutions.

The strength of this readable book is its sharp focus on economic theory. The book touches only lightly on the moral and political dimensions of binary economics. For a deeper discussion on those issues, the reader should turn directly to Kelso's writings and to the compendium of articles (including one by Kelso and another by Ashford) presented in the book, CURING WORLD POVERTY: THE NEW ROLE OF PROPERTY, John H. Miller, ed., published in 1994 by Social Justice Review (St. Louis).

To move toward the goal of general affluence within the new ownership paradigm, the authors advocate a "binary infrastructure" including principled yet practical social policies and "social tools," such as:

--"constituency" vehicles, like ESOPs, using tested principles of corporate finance to connect all citizens to capital credit as a new and fundamental right of citizenship;

--a tax system and corporate policies that encourage the full payout of corporate profits;

--capital credit insurance and re-insurance as a substitute for collateral; and

--a flexible but disciplined monetary policy which liberates future growth from the slavery of past savings.

I wholeheartedly endorse this book as required reading for all serious and open-minded students of economics. It is especially valuable for all policymakers who have not yet become, in the words of Keynes, unwitting "slaves of some defunct economist."

Mobs, Messiahs, and Markets: Surviving the Public Spectacle in Finance and Politics

A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation

The Economic Naturalist: In Search of Explanations for Everyday Enigmas

The Paradox of Choice: Why More Is Less

The Wisdom of Crowds


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