“The Roman arena was technically a level playing field. But on one side were the lions with all the weapons, and on the other the Christians with all the blood. That’s not a level playing field. That’s a slaughter. And so is putting people into the economy without equipping them with capital, while equipping a tiny handful of people with hundreds and thousands of times more than they can use.” –Louis O. Kelso in Bill Moyers: A World of Ideas II, Public Opinions from Private Citizens, (1990, both book and video) page 214, ISBN 0385416644
Binary economics, also known as Two-factor Economics, is a theory of economics that endorses both private property and a free market but proposes significant reforms to the banking system. According to theories first proposed by Louis Kelso, widespread use of central bank-issued interest-free loans to fund employee-owned firms can finance economic growth whilst widening stock ownership in a way which binary economists believe will be non-inflationary.
Binary economics rejects the claim that neoclassical economics alone promotes a ‘free market’ which is free, fair and efficient. (e.g., as an interpretation of the classical First Fundamental Theorem of Welfare Economics). Binary economists believe freedom is only truly achieved if all individuals are able to acquire an independent economic base from capital holdings, and that the distribution of ownership rights can “deepen democracy”.
Although elements of binary economics can be found elsewhere (e.g., Pope Leo XIII’s Rerum Novarum 1891; the Distributism economic ideology of G.K. Chesterton and Hilaire Belloc; and Harold Moulton (1935) The Formation of Capital, 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).
Let us hope Trump Administration will work to remove the myth that the conflict is between Right and Left. Even most the Republicans and Democrats themselves are in illusion that it is Right versus Left. I have great hopes in India and the rest of BRICS to promote Binary Economics all over the world as a viable ideological alternative for Right and Left and rid the world from the poisonous Khazarian politics and economics. Humanize Capitalism.
Louis Orth Kelso (December 4, 1913 – February 17, 1991) was a political economist, corporate and financial lawyer, author, lecturer and merchant banker who is chiefly remembered today as the inventor and pioneer of the employee stock ownership plan (ESOP), invented to enable working people without savings to buy stock in their employer company and pay for it out of its future dividend yield.
Kelso created the ESOP in 1956 to enable the employees of a closely held newspaper chain to buy out its retiring owners. Two years later Kelso and his co-author, the philosopher Mortimer J. Adler, explained the macro-economic theory on which the ESOP is based in The Capitalist Manifesto (Random House, 1958). In The New Capitalists (Random House, 1961), the two authors present Kelso’s financial tools for democratizing capital ownership in a private property, market economy. These ideas were further elaborated and refined in Two-Factor Theory: The Economics of Reality (Random House, 1967) and Democracy and Economic Power: Extending the ESOP Revolution Through Binary Economics (1986, Ballinger Publishing Company, Cambridge, Massachusetts; reprinted 1991, University Press of America, Lanham, Maryland), both co-authored by Patricia Hetter Kelso, his collaborator since 1963.
Kelso’s next financing innovation, the Consumer Stock Ownership Plan (CSOP), in 1958 enabled a consortium of farmers to finance and start up a fertilizer plant. Despite fierce opposition from the major oil companies who dominated the industry, Valley Nitrogen Producers was a resounding success. Substantial dividends first paid for the stock and then drastically reduced fertilizer costs for the farmer-shareholders.
Kelso regarded the ESOP and CSOP as pragmatic proof that his revolutionary revision of classical economic theory, and the financial techniques he derived from this new perspective, were sound and workable in the economic and business world.
Kelso long believed that he had not originated a new economic theory but only discovered a vital fact that the classical economists had somehow overlooked. This fact was the key to understanding why the private property, free market economy was notoriously unstable, pursuing a roller coaster course of exhilarating highs and terrifying descents into economic and financial collapse.
This missing fact, which Kelso had uncovered over years of intensive reading, research and thought, drastically modifies the classical paradigm which has dominated formal economics since Adam Smith. It concerns the effect of technological change on the distributive dynamics of a private property, free market economy.
Below is a video of Louis Kelso being interviewed by Harold Hudson Channer. Made in 1987, this video is extraordinarily topical.
Rodney Shakespeare and his BinaryEconomics.net
Rodney Shakespeare was Visiting Professor of Binary Economics at Trisakti University, Jakarta where he taught on the international postgraduate Islamic Economics and Finance program.
He is a Cambridge MA; a qualified UK Barrister; and a well-known paper presenter and lecturer particularly at Islamic conferences dealing with money, the real economy, and social and economic justice. He is a co-founder of the Global Justice Movement and the author of BinaryEconomics.net. In 2000 he received the (Martin Luther) King-Kelso Award. He broadcasts with Press TV, Russia Today, Islamic Republic of Iran Broadcasting and various other TV and radio stations.
Rodney’s first book on binary economics The Two-factor Nation was published in 1976. He is co-author (with Robert Ashford) of the standard textbook on binary economics Binary Economics – the new paradigm (1999).
Rodney Shakespeare is co-author (with Peter Challen) of the subsequent text Seven Steps to Justice (2002) which further develops binary economics, and is also author of The Modern Universal Paradigm (July, 2007) containing later developments in particular relating to paradigmatic understanding and the appeal of binary economics to people of faith and of good faith.
Binary economics is the expression of a new universal paradigm or new understanding of reality that creates a new economics, a new politics, a new justice and a new morality. It also addresses the big environmental issues. Without the new modern universal paradigm there will be no peace, nor an end to colonialism and racism.
Quick Technical Summary of Binary Economics
- Commercial banks to lend (at interest), as they wish, only their own money and, with permission, that of depositors. Commercial banks not allowed creating new money.
NB This creates a limited pool of money enabling reasonable interest rates to be paid to depositors.
- Central (or National or European) Bank to create interest-free loan money for productive capacity and, in particular, for the spreading of productive capacity (and thus the associated consuming capacity), over time, to every person in society. This is counter-inflationary because new, widespread productive (and consuming) capacity comes into existence while the money which created it is cancelled.
- The Central Bank interest-free loan money to be administered by the commercial banks only allowed making a reasonable administration charge.
- The Central Bank need only make periodic checks on a commercial bank to ensure that the interest-free loan supply is being used specifically for the spreading of productive capacity.
Any commercial bank abusing the privilege of administering the interest-free loan supply (for the benefit of everybody in society) will lose that privilege.
In its economics aspect, binary economics is a market economics whose markets work for everybody. Furthermore, it upholds private property but private property (and the associated income) for everybody.
An alternative summary is “the use of national bank-issued interest-free loans, administered by the banking system, for the development and spreading of various forms of productive (and the associated consuming) capacity thereby creating a balance of supply and demand with producers and consumers being the same people (as required by Say’s Theorem) and forwarding social and economic justice.”
No subsidy is involved. Existing money (e.g., a bank’s capital or, with permission, the deposits of customers) may be lent in ways including interest. However, newly created money MUST be lent interest-free for developing and spreading the real economy to every individual in the population.
Fifty Nine False Assumptions of Mainstream Neo-classical Economics
Below are listed fifty-nine false assumptions which underlie mainstream neo-classical economics. These false assumptions are basic things believed to be true or taken for granted as inevitable or sensible, but which, in fact, are false. This is a matter of considerable importance because if only one assumption is false (or, at the most, two or three assumptions are false) then the whole structure of neo-classical economics becomes invalid.
The false assumptions of neo-classical economics are that:-
- Scarcity is an inevitable part of the human condition.
- High taxation is necessary.
- Labour physically creates all, or a large part, of the wealth.
- The ‘free market’ is free.
- The ‘free market’ is efficient and allocates resources efficiently.
- The outcomes of the ‘free market’ are always just.
- Homo economicus is an accurate description of human psychology.
- Conventional economics is an all-encompassing science of objective process and universal value and further improvement to economics is impossible.
- It is a matter of small importance that the banking system creates money out of nothing sufficient for the repayment of the principal of a loan but not of the interest.
- The ‘free market’ consists of states of equilibrium; when there is disequilibrium there will always be a return to equilibrium.
11 There Is No Such Thing As a Free Lunch (any improvement for the poor inevitably involves a detriment to the rich).
- The ‘free market’ upholds private property for all.
- It does not matter who owns the capital, particularly productive capital.
- The ‘free market’ implements Say’s market Theorem (Law) that producers and consumers should be the same people.
- Somebody who voluntarily looks after a sick child does no work in the economic sense.
- Interest is inevitable and always necessary.
- Ethics/morality is not part of economics.
- The poor are poor because of lack of effort and lack of skill (rather than lack of productive capital, lack of access to capital credit and suffering the burden of interest).
- Inflation is not caused by the banking system.
- Financial savings are necessary before there can be investment.
- Physical savings are necessary before there can be investment.
- Labour and welfare payment will always suffice.
- It is not necessary for every person to have an independent income.
- The level of interest rates is all that is necessary to manage an economy properly.
- Wide ownership is not necessary.
- Student loans should bear interest.
- Public capital projects should be funded by borrowing interest-bearing money.
- Micro-credit lending should bear interest.
- Environmental capital projects should bear interest.
- An economy requires two lots of financing – one for production and one for consumption. (NB Only one lot of financing is necessary if it is simulfinancing as in binary economics).
- There is no such thing as society.
- Personal debt is healthy for an economy; as also national debt.
- There is no power imbalance between actors (participants, including individuals) in an economy.
- Social and economic justice on the one hand and efficiency on the other are incompatible.
- Economic history is irrelevant.
- Outdated economic theory (Adam Smith, 1776), basically conceived before the industrial revolution had got under way, suffices to guide modern economic theory and practice.
- The important things in economics are anything except the development and spreading of productive capacity so as to make producers and consumers the same people thereby enabling a Say’s Theorem (Law) balance of supply and demand and also enabling the forwarding of social and economic justice.
- Banks should be able to offer mortgages (as distinct from administering national bank mortgages).
- Economic inequality is desirable; the greater the ratio between top earnings and bottom earnings, the better.
- ‘Trickle down’ economics works.
- Rising house and stock market prices are necessarily a sign of genuinely increased wealth.
- Economic cycles are inevitable.
- Individual greed is good and institutionalised greed is even better.
- Countries should raise money at interest on the international markets.
- Countries should not be autonomous; they should be controlled by others.
- A country’s assets should be owned by outsiders.
- A country’s money supply should originate in the banking system rather than the national bank.
- Employee shareholdings and involvement do not improve efficiency.
- Political democracy does not require economic democracy.
- Even though today’s banking system money is created out of nothing there is a time value to borrowed money.
- Environmental matters are extraneous and impose extraneous cost.
- Not only ethics but belief in God should be eschewed.
- Economics is essentially a separate subject which does not have to take account of other subjects.
- The creation of money out of nothing and the addition of interest does not require even more creation and even more debt.
- Population growth is inevitable.
- An understanding of technology is irrelevant to economics.
- Jobs can be exported.
- Domestic manufacturing does not matter.
- Education and training suffice for economic needs.
NB Binary Economics becomes easily understood if the fifty-nine false assumptions of prevailing economics are one by one, and simply, reversed. Quite soon, it becomes apparent that a different picture is emerging and then, long before all the false assumptions have been reversed, it is brightly clear that a totally new landscape – the Binary landscape – has emerged.
Binary Economics might be summarized in “a justice which creates efficiency and an efficiency which creates justice. “ It is the only opportunity for people to create real democracy, away from fake contemporary democracies and tyranny. It a real challenge and threat for the Right, Left, and Khazarians, that is why people will not be allowed to know it, despite its existence for a very long lime.
The fourth side of this economic and political global conflict is the people, and they are the least influential.