Binary Economics: The New Paradigm [Paperback]

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."

ABOUT THE REVIEWER: Mr. Kurland, a lawyer-economist and president of the Center for Economic and Social Justice was Louis Kelso's Washington-based political strategist for 11 years, following years of work in civil rights and the War on Poverty. In 1974, he and Kelso persuaded Senator Russell Long to champion legislation to promote employee stock ownership plans or "ESOPs." Among the expanded ownership models Kurland designed was the world's first 100% leveraged ESOP buyout, and the first ESOP in a developing country. Mr. Kurland was appointed by President Reagan in 1985 as deputy chairman of the bipartisan Presidential Task Force on Project Economic Justice, formed to promote Kelsonian reforms in US assistance programs to developing economies.

The second chapter of Dr. Brian Greene's wonderful recent book, THE ELEGANT UNIVERSE, begins with the following passages. "In June 1905, twenty-six-year old Albert Einstein submitted a technical article to the ANNALS OF PHYSICS in which he came to grips with a paradox about light that had first troubled him as a teenager, some ten years earlier. Upon turning the final page of Einstein's manuscript, the editor of the journal, Max Planck, realized that the accepted scientific order had been overthrown." If one completes a thorough reading of BINARY ECONOMICS:THE NEW PARADIGM without a very similar sense of historic import, a second reading, at the very least, is likely in order. As an independent researcher with pronounced interests in some of the more rarified limits of current scientific inquiry such as superstring theory, complex adaptive systems, nanotechnology, genome studies, biophysics and significant recent developments in Artificial Intelligence, I am often led to contemplate the longer term social and economic implications of the often breath taking advances being quietly but incessantly developed in the academic, corporate and government research labs of this country and around the world. Perhaps because of the persistent background hum of these ruminations, a somewhat more than avocational, but less than career specialized interest in history and economic theory has been cultivated between the previously mentioned preoccupations. I mention all of this by way of attempting to place in some context why I regard the subject of this new book to be SO enormously important. Again, the book to which I refer is entitled, BINARY ECONOMICS:THE NEW PARADIGM, by Robert A. Ashford and Rodney Shakespeare. In doing considerable associated reading in the Binary literature, it becomes stunning and disturbing to learn that a conceptual breakthrough of the absolutely transparent significance of both the Kelsonian distinction between productivity, traditionally defined, and binary productiveness, AND the insight that capital is INDEPENDENTLY productive, with all of the profound distributive, legal, social, economic institutional implications attendant to this insight, has apparently been marginalized by the prevailing academic and policy priesthood for so long and so lamely. One cannot help but be reminded of other work of historic importance originally dismissed and ignored; reminded that Mendel's work in heredity had to be revived from the void of indifference and inattention long after his death; more recently, in the field of biophysics, one is reminded of how the brilliant, profound and almost certainly far prescient work of the great Russian scientist, Alexander Gurwitsch, has been lost in the same void. Historians of science would undoubtedly enumerate scores of other cases, with, however, a significant difference, in my opinion. Rarely, I would venture, has there ever been such a high risk in the benefits denied to society for such instances of bias, academic politics, and/or insight envy as there is now for continuing to dismiss outright or trivialize as 'fadish' (as Professor Samuelson apparently once did with respect to Binary Theory) the core theoretical insights and institutional prescriptions of this theory. Messrs. Ashford and Shakespeare set out to redress such oversight with respect to Binary Theory in this book and compellingly succeed. In fact, I would go further than this. When one considers the technologies arising, or likely to arise from many of the areas of research alluded to earlier, the natural, indeed the blatantly obvious, resonance with the Binary concept of the independent productiveness of capital is SO pronounced that there begins to emerge a sense of near historical inevitability to an ultimate recognition of legitimacy, and policy implementation of a Binary adapted market system. In such a context, one finds oneself not merely inspired by the possibilities, but increasingly incensed at the obdurate clinging to denial that threatens the sooner fulfillment of such potentially overwhelming social and economic benefits,which there is no good reason to short circuit. Upon completing this work, one is left feeling that it is time to join Messrs. Ashford and Shakespeare in intellectually rolling up our sleeves, as it were, and energetically getting about the business of transcending the complacency that rings its hands over issues of distributional inequity but can't imagine any policy alternative not sanctioned by the big daddy of conventional REdistributional wisdom. One is left with a powerful conviction that the late Louis Kelso has provided us with the fundamental conceptual breakthroughs that many have long intuitively sensed were needed to elevate distributional mechanisms to a more complete level of theoretical comprehensiveness and institutional efficacy that, I believe, the rarified technologies of the future will nearly compel. In BINARY ECONOMICS:THE NEW PARADIGM, I believe that Messrs. Ashford and Shakespeare have thrown down a gauntlet of challenge that will place a very weighty scholastic burden on the equivocators for the conventional wisdom. Finally, I believe that this work is FAR too important to merely leave to the vagaries of a salvaging retrieval from the void by some hopefully more attentive future. Especially at a time when major national elections loom, and issues of real substance are all too often AWOL, this work deserves the most attentive consideration by every interested citizen, theoretician, and politico.

Binary Economics: The New Paradigm, by Robert Ashford and Rodney Shakespeare deserves a careful reading by anyone concerned with growth and economic justice. In so-called free market economies, as they are presently constituted, the great benefits of economic growth (which are in turn the consequence of the pace of technological advance) do not accrue to most poor and working people, though it is poor and working people who bear the cost of such technological advance in the instabilities and displacement it engenders. Rather, the great benefits of that economic growth go primarily to the wealthy few who, through their ownership of stock, exercise a claim on corporate earnings. The result is a growing disparity in wealth and opportunity that is doing great harm to society. Many have tried to address this problem; but as yet, conventional thinking has failed to produce a working consensus on what can and should be done to create a more just and efficient economic playing field. In Binary Economics: The New Paradigm, in very readable prose, Robert Ashford and Rodney Shakespeare carefully advance a wholly voluntary means of enabling increasing numbers of poor and working men and women also to exercise a viable claim on the growing benefits of technological advance (and hence of economic growth) as a normal function within the framework of a market economy. Their proposed system builds on existing principles of corporate finance, insurance and monetary policy, making only modest and wholly democratic changes intended to facilitate capital acquisition for all people. Whether the voluntary operation of a binary economy will produce the growth, distributive justice, and other benefits predicted by binary economists remains to be seen; but the binary proposals and predictions cannot be responsibly dismissed on the strength of conventional economic theory, which itself has yet to solve, let alone explain, the problem that Ashford and Shakespeare address. Theirs is a noble goal, and the new discourse they seek to initiate, focused on achieving a more equitable distribution of wealth by way of voluntary transactions and without distribution, is of the utmost importance. People concerned about economic justice and efficiency cannot credibly claim to be open to new solutions and yet ignore this book.