Every now and
then we consider a question from a new perspective, usually because someone
asks us a question that we answer . . . and then stop and wonder why someone
asked the question in the first place.
This is not
because we object to questions. As we’ve
said many times before, we like getting honest questions — “honest question”
being defined as a question someone asks because he or she actually wants an
answer, not to deliver a disguised speech in the form of a fifteen minute
question or carry out an attack covered up with a disingenuous, “I was only
asking. . . .”
No, the reason we
wonder why some people ask certain questions is because we’ve covered the material
before (adequately, we thought), so how was it we didn’t seem to get the idea
across?
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| There are both human and non-human factors of production. |
We could, of
course, just call anyone who asks such a question stupid, but that doesn’t
really do anything to advance human knowledge.
It also deprives us of a chance to spout off about something. . . .
Recently we had
someone ask, not in so many words, “What is capital?” Our gut reaction was, “Didn’t we make that
clear?”
In a manner, yes,
but we failed to take into account that we forgot to qualify our answer by pointing
out that other people use the word capital in other ways. All we did was restate the definition in our
“Just Third Way Glossary”:
Capital. In binary economics, all
non-human factors of production, including land, plant and equipment, advanced
technological tools, rentable space, physical infrastructure, and intangibles,
such as patents, copyrights and advanced management systems.
Ordinarily, we do
mention that, to a number of people, “capital” as a factor of production is
limited to technology, that is, human artifacts. This is only relevant when academic
economists sneer and try to create a straw man by asserting that Louis Kelso’s
breakthrough is limited to the less-than-astonishing realization that there are
two factors of production, the human and the non-human.
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| "Look, guys, binary economics is simple, not simplistic." |
This permits
academic economists to snicker and say (quite correctly, if irrelevantly) that
this is a difference that makes no difference.
No difference, that is, unless you’re a follower of classical economist
David Ricardo, the communist Karl Marx, or the agrarian socialist Henry George,
among others, who consider land a “cost free factor of production” or that
human labor is the only productive factor — technology being a form of
accumulated labor, leaving land out in the cold.
We’re sorry to
upset the academic economists (in a pig’s eye we’re sorry), but binary economics
is called binary economics not merely because the factors of production are
limited to two. If that were the case,
the academic economists would be right, and Kelso relegated to the status of a
simpleton who makes the great discovery that the sky is blue and the grass is
green.
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| "Consumption is the sole end and purpose of all production." |
The fact of the
matter is that binary economics would still be binary economics, and Kelso’s
theories would remain the same, if he had claimed there were not two, but two
thousand factors of production, a thousand human, and a thousand non-human, or
even a trillion or two of each. It makes
absolutely no difference how you break them down for the purpose of analysis,
except that limiting the factors of production to two simplifies the job; it’s
an abstraction to bring the vast concept of production and its factors down to
human scale so it can be studied and discussed.
The term binary
economics comes from the fact that Kelso’s binary theory is based in part on
Say’s Law of Markets, which is itself is based on the binary observation that
constitutes Adam Smith’s first principle of economics stated in his The Wealth of Nations (1776):
“Consumption is the sole end and purpose of all production.”
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| "For every action there is an equal and opposite reaction." |
Smith’s principle
is sort of the economic equivalent of Isaac Newton’s "binary" third law of motion as
stated in his Philosophiæ
Naturalis Principia Mathematica (1687): Lex III: Actioni contrariam semper et æqualem esse
reactionem: sive corporum duorum actiones in se mutuo semper esse æquales et in
partes contrarias dirigi: “Law III: To every action there is always opposed an equal
reaction: or the mutual actions of two bodies upon each other are always equal,
and directed to contrary parts.”
Or, if you (like us) prefer,
For every action, there is an equal
and opposite reaction.
In economic
terms, then, and everything else being equal (or, if you groove on Latin, ceteris paribus), for every production
there must be a consumption, and for every consumption there must be a production. This is the binary relationship at the heart
of (you guessed it) “binary economics.”
Combining all
non-human factors of production together as “capital,” while not essential to
maintain the validity of Kelso’s theory, does make analysis neater and
simpler. It also reinforces what is essential: that one of the keys to
maintaining a just economy that works for everyone is to have production and
consumption in balance, that is, "binary."
The question then
becomes how this can be done.
#30#