THE Global Justice Movement Website

THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.

Tuesday, November 10, 2020

A Framework for a Solution

Now that the dust (or whatever it is) has (sort of) settled from the election (more or less), America and the rest of the world can get back to a more immediate problem: How to make people productive so that they can take care of themselves instead of going hat-in-hand to the rich or to the State.  Nor is this an academic exercise, given that government has shown itself all-too-willing to create money backed by its own debt and throw it at the problem, thinking something has been done.

Salmon P. Chase


To be entirely honest, of course, something has been done by government printing up increasingly worthless fiat funds to finance federal fatcat foolishness.  Didn’t think we could use that many f-words and get away with it, did you?

Anyway, recent events — to say nothing of what’s been going on since the beginning of the American Civil War and Salmon P. Chase’s antics as Secretary of the Treasury under Abraham Lincoln — have made one thing painfully obvious. Our political leaders and those in charge of what is rather broadly termed “the financial services industry” do not appear to have any real idea what they are doing in monetary and fiscal matters. That is the only way to explain the slavish devotion to Keynesian economics and the massive buildup of deficits that Keynesian theory believes are required to keep the economy running, exacerbated by the pandemic.

Consequently, money and credit have been separated as a matter of course from the present value of existing and future marketable goods and services. The great mass of people has been denied access to the means of acquiring and possessing the productive capital that is rapidly displacing human labor from the economic process.

Louis O. Kelso


The outcome is only to be expected. Humanity faces what seems to be an incomprehensible and insolvable paradox. The world has the capacity to support everyone in reasonable comfort, even in what past ages would regard as luxury. Nevertheless, disconnected from ownership of capital, the primary factor of production, many people today are only able to acquire the necessities of life by mortgaging their future and assuming an unconscionable burden of debt. Others have no hope of a decent life at all.

The binary economics of Louis Kelso and the social justice analysis of William Ferree offer a way out of this seemingly hopeless situation. Binary economics is based on the principles of economic justice developed by Louis Kelso and Mortimer Adler and presented in the two books they co-authored, The Capitalist Manifesto (1958) and TheNew Capitalists (1961). The laws and characteristics of social justice are presented in William Ferree’s The Act of Social Justice (1943) and summarized in Introduction to Social Justice (1948).

Briefly, binary economics is the “post-scarcity” theory developed by Kelso in the 1950s. “Binary” means “consisting of two parts.” Kelso divided the factors of production into two all-inclusive categories — the human (“labor”), and the non-human (“capital”). The central tenet of binary economics is that there are two components to productive output and to income: 1) that generated by human labor, and 2) that generated by capital. Classical economic theory, on the other hand, regards all output and income to be derived from labor whose productivity is enhanced by capital.

Harold G. Moulton


The most significant difference between the major schools of economics and binary economics, however (at least as far as we’re concerned today), is that virtually all academic economists and policymakers today insist that existing accumulations of savings are essential in order to finance new capital formation. That is not correct, as Dr. Harold G. Moulton demonstrated in his classic 1935 monograph, The Formation of Capital.

Written to present an alternative recovery program to the Keynesian New Deal of President Franklin D. Roosevelt, The Formation of Capital proved it is unnecessary to rely on existing accumulations of savings to finance capital formation. New capital can be financed by monetizing the present value of the marketable goods and services that the capital is expected to produce over its useful life. Existing inventories of marketable goods and services can be cleared at market prices by the same process.

Kelso and Adler added one more thing for an economy to be sustainable and secure: widespread direct ownership of the means of production. As technology advances and capital becomes hyper-productive relative to human labor, human labor becomes relatively less valuable in the production of marketable goods and services.

This is because the profits from production go by natural right to whoever owns the means of production. Consequently, owners of capital become rich, while owners of labor become poor. The corrective is not to confiscate from the wealthy for redistribution among the poor, but to open up some means whereby those who at present own only their own labor can become owners of capital.

John Maynard Keynes


Some authorities, such as John Maynard Keynes, believe that concentrated ownership of the means of production is a necessary precondition for economic development. This is to generate the existing accumulations of savings thought to be essential to finance new capital formation. The idea is that only the rich — and the richer, the better — have the capacity to cut consumption and save without hardship. This makes the rest of humanity dependent on the rich for jobs.

On the contrary, as Kelso and Adler demonstrated. Relying on existing accumulations of savings to finance capital formation is detrimental to sound economic growth. It unnecessarily shackles the future to the past. This is because the cuts in consumption required to accumulate savings means that demand for capital — derived from consumer demand — is rendered less financially feasible to that extent. That is, if consumers save instead of spending, new capital is less likely to be put into operation because the owners believe they won’t be able to sell all they produce. Thus humanity is, in effect, enslaved to savings. This is why Kelso and Adler subtitled their second book, “A Proposal to Free Economic Growth from the Slavery of Savings.”

This is not hostility to savings. Binary economics acknowledges the crucial role that savings plays in financing capital formation, but — consistent with Moulton’s analysis — shifts the saving from the past to the future. That is, instead of cutting consumption in order to accumulate financial capital before investing, Moulton and Kelso used the concept of financial feasibility: that all capital, to justify its purchase, must reasonably be expected to pay for itself out of its own future earnings.

How to persuade economists and policymakers to shift their thinking, however, is the job of the “act of social justice” — and that is what we’ll address in the next posting on this subject.