Capital Democratization

Although principles underlying binary economics were first published in 1958 (Kelso and Adler), the many books and papers that discuss the subject, with the exception of Kane (2000) and Kurland (2001), do not utilize conventional economics language. To facilitate the teaching of binary economics in beginning and intermediate college courses in economics and business, the paper explains some major microeconomic and macroeconomic fundamentals of binary economics by utilizing conventional neo-classical economic models. It then compares the theoretical results reached in a non-binary economic environment to those that may be reached in a binary one. The most important result from the comparison is that, in a non-binary environment, the economy would employ less than full potential capital and thus generate less than optimum output, consumption, saving and investment. The authors hope the article will help the reader to (a) understand the binary principles and (b) analyze the ‘binary promise’ of greater growth based on a broader distribution of capital ownership. Conventional wisdom effectively treats capital (land, structures, machines, and the like) as though it were a kind of holy water that, sprinkled on or about labor, makes it more productive. Thus, if you have a thousand people working in a factory and you increase the design and power of the machinery so that one hundred men can now do what a thousand did before, conventional wisdom says, 'Voila! The productivity of the labor has gone up 900 percent!' I say 'hogwash.' All you've done is wipe out 90 percent of the jobs, and even the remaining ten percent are probably sitting around pushing buttons. What the economy needs is a way of legitimately getting capital ownership into the hands of the people who now don't have it." (Louis O. Kelso, 1982, www.kelsoinstitute.com)