Binary Economics

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= In its economics aspect, binary economics is a market economics whose markets work for everybody. Furthermore, it upholds private property but private property for everybody

URL = http://www.binaryeconomics.net/


Definition

1. Pat Conaty:

"economics plans for dual income for citizens (wage and capital spreading) were first proposed as a solution to falling demand in the first big industrial depression of the 1820s by the Swiss economist, Sismondi."


2.

"The ‘binary’ (in ‘binary economics’) sometimes perplexes people. It means ‘composed of two’ because it suffices to view the factors in production as being but two (labor and capital) and thus there are only two ways of genuinely earning a living − by labor and/or by the ownership of productive capital.[30] In viewing the two factors it can also be observed that humans own their own labor but they do not necessarily own the other factor – capital." (http://binaryeconomics.net/background/)


Description

1. From the Wikipedia:

"Binary economics is a heterodox theory of economics that endorses both private property and a free market but proposes significant reforms to the banking system. The aim of binary economics is to ensure that all individuals receive income from their own independent capital estate, using interest-free loans issued by a central bank to promote the spread of employee-owned firms.These loans are intended to: halve infrastructure improvement costs, reduce business startup costs, and widen stock ownership.

Binary economics is a minority discipline, hard to place on the left-right spectrum. It has variously been characterized as an extreme right-wing ideology and as extremely left-wing by its critics. The ‘binary’ (in ‘binary economics’) means ‘composed of two’ because it suffices to view the physical factors of production as being but two (labour and capital which includes land) and only two ways of genuinely earning a living − by labour and by productive capital ownership. Humans are usually considered as owning their labour, but not necessarily the other productive factor – capital.

Binary economics is partly based on belief that society has an absolute duty to ensure that all humans have good health, housing, education and an independent income, as well as a responsibility to protect the environment for its own sake. The interest-free loans proposed by binary economics are compatible with the traditional opposition of the Abrahamic religions to usury.

Proponents of binary economics claim that their system contains no expropriation of wealth, and much less redistribution will be necessary. They argue that it cannot cause inflation and is of particular importance as more of the physical contribution to production is automated. and that the Binary economics paradigm[10] is particularly helpful in addressing the issue of why developing countries languish. Advocates contend that implementing their system will lessen national debt and encourage national unity. They believe binary economics could create a stable economy.

In its intent to involve people in ownership and participation binary economics has affinity with Distributism and with the worker cooperatives of the Emilia-Romagna region of Italy and the Mondragón Cooperative Corporation of Spain." (http://en.wikipedia.org/wiki/Binary_economics)


2.

Rodney Shakespeare [1]:

"An alternative summary is – the use of central bank-issued interest-free loans, administered by the banking system, for the development and spreading of various forms of productive capacity (and the associated consuming capacity) thereby creating a balance of supply and demand and forwarding social and economic justice. A quick illustration of binary economics is the funding for a bridge, sewage works or hospital - the use of central bank-issued interest-free loans halves or more the cost. Two more illustrations are a halving or more of the usual cost of micro-credit for poor people; and the enabling of any individual in the population (from a baby to a retiree) to become a shareholder in one of the great corporations. The central bank is used as the source of the loans to emphasise that the money supply is not that of a mere private grouping (as is the case today) but is society’s money supply which (although administered by the banking system) can be interest-free for the purposes of an efficient, just economy."

Furthermore, binary economics addresses a number of weaknesses in the current economic system which are dismissed by conventional economics as being of no, or low, importance.

The weaknesses include:–

  • Almost all of the modern money supply is in the form of interest-bearing debt created and owned by the banking system[12]
  • The money supply is generally not directed at productive capacity[13]
  • Forms of productive capital remain narrowly owned and there is no policy to spread the ownership of productive capacity throughout the population
  • People do not have their own independent incomes

Binary economics redresses those weaknesses. In particular, the spreading of ownership enables the spreading of the associated incomes. Indeed, over time, on market principles, binary economics enables all individuals to obtain an independent income or binary competence. The competence (the word can be traced back to Jane Austen, Alexander Pope and William Shakespeare meaning property or means sufficient for the necessaries and conveniences of life; sufficiency without excess) is defined as:-

a capital estate large enough to supply sufficient current consumer income to support at least one half of an affluent life style (measured in the context of what society as a whole can efficiently produce)." (http://www.binaryeconomics.net/)


3. From the Center for Economic and Social Justice:

"The "post-scarcity" theory developed by lawyer-economist Louis O. 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 and more consumable goods with less and less input and resources.

Binary economists Robert Ashford and Rodney Shakespeare identify 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 (1) effective broad-based ownership of capital, (2) the restoration of and universalized access to the full rights of private property, (3) limited economic power of the state (whose main role should be to eliminate special privileges, monopolies and other barriers to equal participation) and (4) 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:

  • 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.)
  • Harmony, 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 "social justice," as it calls for the restructuring of the economic system to restore participative and distributive justice."

(http://www.cesj.org/definitions/glossary.html)


Related Concepts

"Binary Growth. Within binary theory, this concept holds that economies grow steadily larger as private capital acquisition is distributed more broadly among the population on market principles. This concept also focuses on the importance of unleashing the unutilized or underutilized capacity of all economic systems to produce in greater abundance.

Binary Productiveness. This concept states that while humans contribute to economic growth through all forms of labor, capital assets such as machines and technological processes are making an even bigger, ever-increasing contribution to overall output, in relation to that contributed by human labor.

Binary Property Right. This concept refers to the right of every person to acquire, on market principles, private (individual and joint) ownership of wealth-creating capital assets." (http://www.cesj.org/definitions/glossary.html)


Discussion

Conventional economics compared with binary economics

Rodney Shakespeare:

A good understanding of binary economics can be obtained by contrasting various aspects with comparable aspects in conventional economics.

For example, conventional economics upholds the concept of productivity (generally labour productivity) while, in complete contrast, binary economics has the new concept of productiveness giving fair credit to the contributions of both labour and capital.

Then conventional economics believes that interest (as opposed to administration cost) is always necessary but binary economics, again in complete contrast, states that, certainly where the development and spreading of productive (and the associated consuming) capacity is concerned, interest (as opposed to administration cost) is not necessary.

The contrast continues. Thus conventional economics:-

  • is largely unconcerned that the present money supply is generally not directed at productive capacity
  • in practice engenders a continual inflation
  • conceives of a self-centred Homo economicus
  • eschews ethics and belief in God
  • ignores the imbalance in power relationships between people.

But binary economics views it as essential that:-

  • the money supply be directed at the development and spreading of productive capacity
  • the money supply be not inflationary, indeed, should be counter-inflationary
  • recognition be made that humans are capable of going beyond self-interest
  • ethics and belief in God be upheld
  • account be taken of the imbalance in power relationships between people.

Very fundamentally, binary economics rejects the claim of conventional economics that it promotes a ‘free market’ which is free, fair and efficient. Binary economics states that the present ‘free market’ is unfree, unfair and inefficient not least because the ‘free market’ thinks it does not matter who owns productive capital and how it is distributed and does not worry if people do not have independent incomes.

In a quite remarkable way the two economics differ on the subject of democracy. Conventional economics upholds the periodic political vote (as in, for example, elections to government). Binary economics does the same but then deepens democracy by insisting that productive capital and the practical everyday power its ownership gives to individuals be widely distributed as well. In binary economics freedom is only truly achieved if all individuals are able to acquire an independent economic base. In short, binary economics upholds political democracy plus economic democracy.

Perhaps most importantly of all, conventional economics is generally heedless of (or at least, not directly involved with) environmental issues but, even if it does heed them, does not have the specific mechanisms to address the environment in a large-scale way. Indeed, conventional economics generally views environmental solutions as imposing an economic cost, and a large one at that. Binary economics, however, again in complete contrast, does have the mechanisms and its solutions do not impose economic cost.

Lastly, conventional economics claims that its mathematical equilibriums are a manifestation of a world-encompassing objective science expressing universal values. But binary economics denies that claim." (http://www.binaryeconomics.net/)

Employee Stock Ownership Plans

"Very often the first acquaintance people have with binary economics comes through today’s Employee Stock Ownership Plans (ESOPs). These stem from conversations between Louis Kelso and Senator Russell Long of Louisiana and Senator Mike Gravel of Alaska in the early 1970s. The binary ESOP is a capital credit device which institutionalizes the basic binary property right - the right for all individuals to acquire capital, to pay for it out of its pre-tax earnings, and then to receive its income. The legal entity which acts for the employees and oversees the capital acquisition and distribution of profits, is the ESOP trust.

However, it is important to understand that (the original binary concept having been implemented for the purposes of the old paradigm rather than the new binary one) present ESOPs are not true binary ESOPs. Among other things, present ESOPs do not have full payout of earnings and do not make use of the key binary concept – the use of interest-free loans issued from the central bank and administered by the banking system.

It should be noted that the ESOP is only one of several techniques − e.g., Individual Share Ownership Plan, Consumer Share Ownership Plan, General Share Ownership Plan, Mutual Share Ownership Plan − which can be used to broaden capital ownership but all the techniques have at their heart the use of central bank-issued interest-free loans for the creation and spreading of productive capacity.[35] Without those loans the primary defect in the present ESOP legislation will remain in that it requires poor and working people to acquire capital primarily with the present earnings of labor rather than primarily with the future earnings of capital." (http://binaryeconomics.net/background/)


More Information

  • Extensive notes and bibliographic material is available at the Wikipedia article at

http://en.wikipedia.org/wiki/Binary_economics

  • Pat Conaty recommends:

"Schumacher's updated model of these ideas in the last chapter of Small is Beautiful is in this distributist tradition. Three years later in 1976 Rudolf Meidner in Sweden began to implement this model and it was working positively before this ingenious share levy on corporate wealth plan was shut down in the early 1990s. See the summary by Robin Blackburn below.

http://www.counterpunch.org/2005/12/22/a-visonary-pragmatist/ "

See Also