Louis O. Kelso is today best known as the inventor of the Employee Stock Ownership Plan (ESOP). Despite the near-total global hegemony of Keynesian economics which assumes nothing can be done unless wealth is concentrated and government must be in charge of everything, the ESOP remains important to broaden the base of capital ownership.
Usually, ESOPs enable workers to build wealth through employee ownership without replacing wages. ESOPs are also often an important tool for succession planning and business continuity, providing liquidity for retiring owners and tax advantages for businesses and employees.
The broader goal is to counteract economic inequality by giving more people a stake in companies. This ensures broader participation in wealth creation beyond just labor income. Key aspects of ESOPs today therefore include:
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| Louis O. Kelso |
· Wealth Building for Employees. ESOPs allow employees to own a stake in their company, sharing in its success and building wealth in addition to their wages.
· Business Continuity and Succession. ESOPs offer a way for founders or owners to exit a business by selling their company to their employees, often with significant tax benefits, which helps ensure the business continues to operate.
· Employee Engagement and Motivation. Ownership fosters greater engagement, motivation, and job satisfaction among workers, as they feel more invested in the company’s success.
· Tax Incentives. Significant tax incentives exist to encourage the use of ESOPs, making them an attractive financial tool for both businesses and employees.
· Economic Disparity Mitigation. Kelso’s original vision for ESOPs was to address economic inequality by providing a broad distribution of capital ownership, a concept that continues to be relevant as wealth concentration increases.
This, of course, only serves to underscore the increasing relevance of ESOPs in the modern global economy, especially its role in the United States:
· Economic Shifts. Income from capital ownership, not just labor, addresses the changing nature of the economy where technology increasingly drives productivity . . . such as the writing of this posting, which was about one-third written by AI.
· Bipartisan Support. ESOPs have garnered support across the political spectrum, with legislation and incentives continuing to be added, showing enduring value.
· Growing Adoption. Considering the “Silver Tsunami” of retiring Baby Boomers, a growing appreciation for independent businesses, and efforts to attract and retain talent, ESOPs may grow in popularity if people once again realize governments do not run economies, people do.
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| Louis O. Kelso |
Nevertheless, while these points address the best-known aspects of the work of Louis Kelso, they only hint at the Real Importance of his work in the development of the theory of economic justice as applied in a modern advanced economy. This is seen in what eventually came to be called “Binary Economics.”
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.
In contrast to traditional schools of economics which assume that scarcity is inevitable, binary economics views shared abundance — sustainable economic growth and the equitable distribution of future wealth and income throughout society — as achievable. Binary economics holds that broad-based affluence and economic freedom, as opposed to financial insecurity and economic dependency for the many, is made possible through the widespread ownership of constantly improved capital instruments and social institutions to produce more consumable goods with less input and resources.
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| Dr. Robert Ashford |
Binary economist Dr. Robert H.A. Ashford identifies three distinguishing concepts within binary theory — binary productiveness, the binary property right, and binary growth. These components interact and reinforce one another, allowing for maximum rates of sustainable growth within a modern, globalized economy.
Binary economics recognizes a natural synergy, as opposed to an unavoidable trade-off, between economic justice and efficiency within a global free marketplace. Rejecting pure laissez-faire assumptions, binary economics holds that a truly free and just global market requires:
· Effective broad-based ownership of capital,
· Restoration of and universalized access to the full rights of private property,
· Limited economic power of the state (whose main role should be to eliminate special privileges, monopolies and other barriers to equal participation) and
· Free and open markets for determining just wages, just prices, and just profits.
The market theory of binary economics is underpinned by three interrelated principles of economic justice:
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| Louis O. Kelso |
· Participative justice, the input principle which demands as a fundamental human right, equal opportunity for every person to contribute to the production of society’s marketable wealth both as a worker and as an owner of productive assets.
· Distributive justice, the outtake principle which holds that the contribution of labor to the economic process should be compensated at the market-determined rate (or “just wage”) for each particular type of human contribution to the production of marketable wealth. This principle dictates that the contribution of capital should be compensated by the “just profit” generated by the project or enterprise. (Profit is determined by the market-based rental value of contributed capital assets, or by the gross revenues resulting from market-determined “just prices” less the market-based cost of the factors of production, including labor.)
· Social Justice, the feedback principle that balances and restores participation and distribution within the economic system. This principle was referred to by Louis Kelso and Mortimer Adler as the “principle of limitation” and by others as “harmonic justice.” Social justice addresses each person’s access to equal opportunity within, and connection to, the economic system and its institutions. It confers a responsibility on every person to organize with others to correct unjust institutions to restore participative and distributive justice.
Limiting Kelso’s thought to the ESOP therefore leaves out the very basis of the ESOP and what led Kelso to invent it — and the importance of the Economic Democracy Act to expand the “ESOP philosophy” and benefits from employees of private sector companies, to every citizen.
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