Talk:Binary Economics

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As the original article on Binary Economics was considered inadequate, I asked Rodney Shakespeare who leads the ongoing development of Binary Economics to provide a proper, informative, substantial article on the present situation. (Information about Rodney Shakespeare can be found below.)

The new article is an extended statement on Binary Economics and brings its development up to date.

A period of seven days was given for discussion before posting this new article on Thursday, 21st September. During the period an article was posted (it is reproduced below). It attracted no discussion or comment or compaison of the texts in article and in discussion.

Janosabel 11:04, 21 September 2006 (UTC)

About Rodney Shakespeare

Rodney's first book on binary economics (The Two-factor Nation) was published in 1976. Rodney is co-author of the standard textbook on binary economics ─ Binary Economics – the new paradigm (University Press of America, 1999). He is also co-author of the subsequent text ─ Seven Steps to Justice (New European Publications, 2003) ─ which furthers develops binary economics, and also author of The Modern Universal Paradigm, containing later developments, being published later in 2006 by Trisakti University, Jakarta and elsewhere.

Trisakti University (where Rodney is Visiting Professor teaching on the international postgraduate Islamic Economics and Finance program) is the largest private university in Indonesia, the second in prestige, and the birthplace of the Indonesian reformasi revolution. Rodney has also been offered, and has accepted, a Professorship at the Asian University of Bangladesh, the largest private university in Bangladesh. 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, binary economics, and social and economic justice. In these fields, the leading Islamic academic is Professor Masudul Alam Choudhury with whom Rodney is at present co-authoring a major work ─ The Universal Paradigm and the Islamic World-system (to be published in 2007) ─ which is permeated throughout by binary economics particularly as it has developed over the last four years.


Contents

[edit] Replaced text on Binary Economics

Binary Economics is an approach to modern economic theory that considers labor (the human factor of production) and capital (everything non-human used in the production of goods and services) as equally fundamental (i.e., binary) factors of production. It is the foundation for the Employee Stock Ownership Plan (ESOP).


One key to understanding the uniqueness of binary economics is to appreciate the "equally fundamental" aspect of its analysis. Thus, binary economics makes a distinction between productivity and productiveness. Productivity, in the classical and neo-classical sense, is the ratio of total output divided by one factor input (usually labor). In contrast, productiveness focuses on "work done" by each factor and "the capacity of each factor to do work." [See e.g., Ashford (1996) "Louis Kelso's Binary Economy" and Ashford and Shakespeare (1999), Binary Economics: The New Paradigm which are set forth in the references and links below]. In relative terms, productiveness is the percentage contribution that labor and capital make to total output or per unit of output.

For example, a man digging a hole with his hands will take four hours to achieve his task by using only labor. By using a form of capital, a shovel, he will be able to dig the hole in one hour or dig four holes in the same amount of time it took him to dig a hole with his hands. Conventional economics sees the primary role of capital as making labor more productive and therefore sees the laborer as four times as productive with the shovel as it is without it. In contrast, binary economics sees that per unit of output the productiveness contribution of labor is only 25% of its former value while the productiveness contribution of the shovel is 75% of the total work done. Thus in the binary view, as technology advances, the primary role of capital is to do ever more of the work rather than to make labor more productive.

Therefore, the distribution of capital acquisition and ownership is of crucial importance in binary economics. In contrast, in conventional economics, the distribution of capital acquisition and ownership is of minor importance; and the main conventional economic approach to helping poor and working people is to focus on the distribution and redistribution of income rather than on opening the broadening of capital acquisition to all people so as to broaden capital ownership.

Binary economics was originated by lawyer, philosopher, and investment banker Louis O. Kelso to explain how capital has become the most important contributor to the production of goods and services in the modern industrial economy and therefore how the ownership of capital has become the most important way for every person to earn income. The authoritative source for Louis Kelso's many authored and co-authored publications can be found at The Kelso Institute web site which can be accessed at <<http.www.kelsoinstitute.org>> (see links below).

Louis Kelso reasoned that as technology advances, the production of goods and services is becoming ever more capital intensive. Therefore, the way in which every individual participates in production must also become more capital intensive. This means that capital income in the form of dividends must increasingly become the source of income of every individual, not merely of people who already own substantial capital estates. Noting that almost all capital is acquired with the earnings of capital and that relatively little capital is acquired with the earnings of labor, Kelso devised ingenius methods to enable everyone, not merely well-capitalized people, to acquire capital with the earnings of capital, and to do so without any redistribution and while honoring the private property rights of all people.

Another unique aspect of binary economics is the principle of "binary growth." [See Ashford (1990, 1996, and 1998) and Ashford and Shakespeare (1999) in the references set forth below.] According to the principle of binary growth, the distribution of capital acquisition with the earnings of capital and the distribution of capital income through its ownership have a very potent, positive relationship to economic growth. In other words, the more broadly capital is acquired with the earnings of capital, the more the economy will grow.

Louis kelso believed that his binary approach to universalizing the right to acquire capital with the earnings of capital ("the binary property right") is essential to (1) the elimination of poverty, (2) sustainable, environmentally friendly growth, (3) the dignity of every individual, (4) economic and social justice and (5) the preservation of democracy. And increasing numbers of people are coming to agree with him. See the references and links below.

The Employee Stock Ownership Plan (ESOP) is just one of many techniques of corporate finance proposed by Louis Kelso that can be used to broaden capital ownership. Like all techniques, it can be misapplied and abused. Nevertheless, the proper use of the ESOP, as envisioned by Kelso, has done much to broaden capital ownership. However, those who would evaluate binary economics based on the efficacy of ESOPs should bear in mind that the full potential of ESOPs for broadening capital ownership is needlessly suppressed by debiltating legislation based on conventional economic theory. The primary defect in the present ESOP legislation is that it continues to require poor and working people to acquire capital primarily with the earnings of labor (rather than primarily with the earnings of capital), and therefore provides only very limited ability for poor and working people to acquire capital with the earnings of capital.

[edit] Criticisms

Timothy D. Terrell summarizes a critique given by Timothy Roth (Roth 1996) on the above given shovel example in his paper Binary Economics: Paradigm Shift Or Cluster of Errors?:

Roth has effectively pointed out some of the salient problems with this view of productivity (Roth 1996, pp. 58–59). Referring to Ashford's hole digger example, Roth argues that someone with human capital had to invent the shovel before it could be used, so the presence of the shovel is not independent of human capital. Also, Roth notes the presumption that the hole digger has no role in the "productiveness" of the shovel. Yet, absent the acquisition of the requisite knowledge — human capital — the hole digger could not use the shovel. Moreover, if the hole digger did not use the shovel, its "productiveness" would be zero. The labor and the capital together produce far more than the two factors could produce separately. Thus, it is not at all clear that "capital productiveness" replaces "labor productiveness." It seems clear that the stocks of human and nonhuman capital are — even in this simplified example — mutually interdependent; that the use of the shovel increases the value of the hole digger's human capital; and that use of the shovel by the hole digger enhances the shovel's value (Roth 1996, p. 60).

[edit] References

  • Ashford, Robert (1990). "The Binary Economics of Louis Kelso: The Promise of Universal Capitalism," Rutgers Law Journal, Vol. 22 (1) 1-121.
  • Ashford, Robert (1996). "Louis Kelso's Binary Economy, Journal of Socio-Economics, Vol 25(1) 1-53
  • Roth, Timothy P. (1996). "A Supply-Sider's (Sympathetic) View of Binary Economics". Journal of Socio-Economics 25 (1): 55–68.
  • Ashford, Robert (1998) "A New Market Paradigm for Sustainable Growth: Financing Broader Capital Ownership with Louis Kelso's Binary Economics," Praxis: The Fletcher Journal of Development Studies, Vol. XIV (1) 25-59.
  • Ashford, Robert and Shakespeare, Rodney (1999), Binary Economics: The New Paradigm, University Press of America

[edit] External links

End of replaced text


[edit] Previous Comment on criticism

The criticism may need some serious disambiguation (emphasis added):

"Roth has effectively pointed out some of the salient problems with this view of productivity (Roth 1996, pp. 58–59). Referring to Ashford's hole digger example, Roth argues that someone with human capital had to invent the shovel before it could be used, so the presence of the shovel is not independent of human capital. Also, Roth notes the presumption that the hole digger has no role in the "productiveness" of the shovel. Yet, absent the acquisition of the requisite knowledge — human capital — the hole digger could not use the shovel. Moreover, if the hole digger did not use the shovel, its "productiveness" would be zero. The labor and the capital together produce far more than the two factors could produce separately. Thus, it is not at all clear that "capital productiveness" replaces "labor productiveness." It seems clear that the stocks of human and nonhuman capital are — even in this simplified example — mutually interdependent; that the use of the shovel increases the value of the hole digger's human capital; and that use of the shovel by the hole digger enhances the shovel's value (Roth 1996, p. 60)".

Janos writes: In my endeavour to improve the present wikipedia article on binary Economics I made comments as follows which are set out below for the sake of historical record.

This statement (from the article above) may be helpful

"[Binary Economics] makes a distinction between productivity and productiveness. Productivity, in the classical and neo-classical sense, is the ratio of labor as input to the overall output. In contrast, productiveness is the percentage of labor or capital that contributes to the output. Labor and capital are of a different nature, and therefore must be seen as separate inputs that both create output."

In the case of an automated factory, labour's output is pressing the start button plus some maintenance, no?

The labour that went into the design and construction of the factory is in an entirely different realm of discourse, no?

Edited by

Janosabel 09:45, 14 September 2006 (UTC)

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